Retail Sales Strong in February 2012

Written by Steven Hansen

February advance Retail Sales should bring smiles to those hoping the economy is improving.  Everything seems good:

  • Econintersect inflation adjusts the data – three month trend is now upward (rate of growth now improving)
  • Some pundits point to gasoline sales as a major contributor to improved retail sales – true but retail sales improved $37 billion year-over-year with gasoline contributing $5 billion of this increase.
  • Econintersect analysis is that retail sales this month is actually signaling a “recovery” is underway.

U.S. Census Headlines:

  • sales up 1.1% month-over-month, up 6.5% year-over-year
  • the market was expecting 1.0% to 1.8% sales growth month-over-month

Econintersect Analysis:

  • sales up 4.2% month-over-month, and up 10.3% year-over-year
  • sales (inflation adjusted) up 4.3% month-over-month, up 7.0% year-over-year

From the U.S. Census Bureau press release:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $407.8 billion, an increase of 1.1 percent (±0.5%) from the previous month and 6.5 percent (±0.7%) above February 2011. Total sales for the December 2011 through February 2012 period were up 6.4 percent (±0.5%) from the same period a year ago. The December 2011 to January 2012 percent change was revised from 0.4 percent (±0.5)* to 0.6 percent (±0.2%).

Retail trade sales were up 1.1 percent (±0.5%) from January 2012 and 6.3 percent (±0.7%) above last year. Building material and garden equipment and supplies dealers sales were up 13.8 percent (±2.6%) from February 2011 and gasoline stations were up 10.3 percent (±1.7%) from last year.

The differences between the headlines and Econintersect are due to different approaches to seasonal adjustment (see caveats at the end of this post).  Inflation adjusted retail sales which was considered flat over the last 4 months is now trending up.

February 2012 was again a record month (current dollars), with the last 12 months having record current dollar sales. This month’s growth spurt could be an anomaly – need to wait a few months to know for sure.

Caveats On Advance Retail Sales

This data release is based on estimates. However, the estimates have proven to be fairly accurate although tend to miss at economic turning points. Therefore up to three months are subject to backward revisions, although normally slight, can sometimes be modest.

The data in this series is not inflation adjusted – and Econintersect adjusts using CPI less shelter CUSR0000SA0L2. As the CPI is not yet released for the current month, Econintersect uses the previous month’s value in its analysis.

The St. Louis Fed also inflation adjusts this series using the CPI. The graph below, using data through December 2011, demonstrates how well retail sales track recessions. For this reason the metric is worth tracking closely.

As in most US Census reports, Econintersect does not agree with the seasonal adjustment methodology used and provides an alternate analysis. The issue is that the exceptionally large recession and subsequent economic roller coaster has caused data distortions that become exaggerated when the seasonal adjustment methodology uses more than one year’s worth of data. Further, Econintersect believes there is a New Normal seasonality. Using data prior to the end of the recession for seasonal analysis could provide the wrong conclusion.

The impact of the monthly retail sales data on GDP is not straight forward. Real GDP (of which the consumer is over 60%) is adjusted for inflation. Further, GDP is an analysis of quarter-over-quarter or year-over-year growth, while retail sales is a monthly data series.

Econintersect determines the month-over-month change by subtracting the current month’s year-over-year change from the previous month’s year-over-year change. This is the best of the bad options available to determine month-over-month trends – as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).

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