Posts filed under “Data Analysis”
Last week, I noted that the Back-to-School Sales were, at first glance, Surprisingly Strong.
I should have known better.
It turns out that a the retail data came with a big fat *asterisk, which (as happens all too often) presented a very misleading view of the data.
Why? Well, we track these numbers so as to have a good read on the strength of the consumer, and how sustainable their present spending pattens are. Given that the US consumer is 70% of the economy, their actions are quite significant.
That’s what makes today’s asterisks so significant: Much of the volume gains came via one offs, unusual factors, and huge discounting, with retailers sacrificing margin in exchange for volume:
"But chains like Wal-Mart Stores and Macy’s, which led the pack, have
slashed prices and dangled large discounts to lure customers, which
could hurt profits and mask troubles that might spill out during the
crucial holiday season."
For many retailers, the August and September same-store sales period
have a very high correlation with fourth-quarter results. Its a 91%
for department stores, 86% for discounters, and 84% for teen retailers,
according to Bear Stearns analyst Christine Augustine.
Indeed, I am going to make a (not-so) bold forecast: This holiday season, starting on Black Friday, we will see big and early discounts. The retailers know this works (for now), and the consumer has been trained to look for them. Hence, the pressure on margins will be significant. This will also be good for low cost overseas manufacturers — China, Viet Nam, Sri Lanka, etc.
What other asterisks are out there for retailers?
* Florida and Texas pushed back the start of their school openings by several weeks this year, inflating the August sales of teenage-oriented retailers (Abercrombie & Fitch, Aeropostale)
* Tax-free shopping days — formerly a single day or week, have been extended through much of August. Abercrombie (ANF) admitted that without the delay of tax-free shopping days in Florida and
Texas, its sales would have risen just 1% rather than 5%.
* The International Council of Shopping Centers (ICSC) noted that August 2007 saw a 2.9% increase — relatively
weak compared with August 2006′s 3.8% sales gains.
* Marketwatch reported that "the hottest August weather in 113 years also sent shoppers buying air conditioners and other hot-weather items as retailers cleared out their summer merchandise in a transition to fall goods, said weather consulting firm Weather Trends International
* Retail slumming is in full effect: Discounters, rather
than full-price chains, reported the strongest performance in August ’07.
At stores open at least one year, sales rose 6.1% at Target (TGT) and 3.1% at Wal-Mart (WMT).
* Gasoline prices below $3 a gallon made consumers feel more comfortable about shopping. However, since then, Oil has ticked back up towards its highs, with gasoline prices sure to follow
* The NYT reported that Wal-Mart said "Consumers flocked to its stores for
bedding, apparel and towels, categories that the chain had struggled
with for much of the year." Why the sudden reversal of fortune? Big discounts.
* Who else was the big winner? Luxury chains. Sales rose 6.6% at Nordstrom and 18.2% at Saks.
* Whose struggling? Full priced department stores. Sales fell 4% at
J. C. Penney, 5% at Dillard’s and 0.6% at Kohl’s.
But don’t take my word for it: listen to what the retailers execs are saying themselves:
"Interviews with retail chief executives — generally an optimistic, cheerleading bunch — found them expressing serious reservations about the outlook for consumer spending over the next several months. “It will be tougher than it is now,” said Myron E. Ullman, chief executive of J. C. Penney, referring to shoppers’ anxiety about the economy. “I do not see anything on the horizon that will turn this around.”
The chief executive of Staples, Ronald L. Sargent, described himself as “nervous” about the holidays; “maybe cautious is the better word,” he said. “The economic forecast is causing people to delay buying what they can delay buying. They are not running out to get the latest all-in-one H.P. printer.”
That’s a big surprise, as these guys are usually in the the "lemonade from lemons" crowd.
Back-to-school boost for retailers
The Seattle Times, Friday, September 7, 2007 – Page updated at 07:36 AM
Retail sales led by back-to-school, luxury shoppers
MarketWatch, 3:49 PM ET Sep 6, 2007
Retail Sales Rise, but Data May Mask Troubles
NYT, September 7, 2007
"The U.S. Commerce Department said Friday that new home sales rose 2.8% in July after falling 4% in June."
That was how most of the MSM covered Friday’s New Home Sales.
The problem is, it is not correct.
First, let’s start with the actual data release, via Commerce:
Sales of new one-family houses in July 2007 were at a
seasonally adjusted annual rate of 870,000, according to estimates
released jointly today by the U.S. Census Bureau and the Department of
Housing and Urban Development.
This is 2.8 percent (±12.0%)* above the revised June rate of 846,000
and is 10.2 percent (±12.3%)* below the July 2006 estimate of 969,000.
That seems pretty straight forward — except the way it was reported ignored the statistical reality.
Commerce noted what the margin of error and statistical significance was. They included this small caveat about the actual data:
Estimated average relative standard errors of the preliminary data are shown in the tables. Whenever a statement such as “2.5 percent (±3.2%) above” appears in the text, this indicates the range (-0.7 to +5.7 percent) in which the actual percent change is likely to have occurred. All ranges given for percent changes are 90-percent confidence intervals and account only for sampling variability. If a range does not contain zero, the change is statistically significant. If it does contain zero, the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.
So the correct answer to the question "What were New Home Sales in July 2007" is as follows:
There was no statistically significant change from June to July. According to the Department of Commerce, the range was -9.2% to +14.8%.
There was no statistically significant change on a year-over-year basis, either. Commerce reported a range from -22.5% to +2.1%.
I am not sure if it is a case of innumeracy or of the media wouldn’t have a story about New Home Sales otherwise.
As the Commerce Department itself reported in the footnotes, Friday’s New Home Sales were statistically meaningless.
Even the nearby chart has the illusion of precision
Existing Home sales were out today, and may come in for the same treatment later this weekend.
Note: This is before we even factor in the cancellation factor after the jump:
UPDATE August 27, 2007 2:21pm
I see that Northern Trust’s Paul Kasriel comments:
Gain in New Home Sales Is Inconsistent with Reports from Home Builders
Today’s report that suggests a recovery in sales of new homes is not anywhere close. At the same time, the increase in sales and price are suspect because the financial press has a number of stories everyday about home builders reporting significant declines in sales and earnings, a plethora of incentives to move sales, cancellations of contracts, and so on. Cancellations of contracts to purchase homes are not reflected in this report. It is reasonable to assume that excluding cancellations leads to overestimating sales of new homes and underestimating inventories of unsold homes. Also, the home builders (see chart 4) survey for August showed the second lowest reading in the history of series. We need to see reports of future months and watch out for revisions of estimates of home sales.
NEW RESIDENTIAL SALES IN JULY 2007 (PDF)
AUGUST 24, 2007 AT 10:00 A.M. EDT
How does the Census Bureau handle cancelled sales contracts?
Gain in New Home Sales Is Inconsistent with Reports from Home Builders
Northern Trust Global Economic Research
August 24, 2007