More Retail Sales Hype

Most people usually have a good reason for doing what it is that they do.

Whenever I am asked why I blog or push back against headlines, my answer is simple: I’m too trusting. In a face-to-face situation, I have the foolish tendency of believing what people say to me. Throughout most of my professional career, when someone looks me in the eye and with a straight face says "Up is down, the sky is pink, check is in the mail," I tended to believe them. Bottom line is, I’m just not a skilled reader of people.

This gulliblity has caused problems for me over the years.

Hence, why I usually don’t talk to CEO/CFOs, and why I find conference calls to be waste of time. Unless a CEO is a total jerk on a conf call — think Sallie Mae (SLM) — the nuances tend to get lost on me.

Spending_vs_consumer_pollsSome time ago, I figured all this out. Rather than listen to what these people were saying, I would go to the data myself. This way, instead of relying on a (self-interested) person to tell me if something was good or bad, I would learn the unvarnished specifics.

Readers of the Big Picture have seen this in terms of true
inflation, GDP growth, Housing sales, job creation, and corporate
profits. Most recently, we have been pulling apart the Retail Sales
Data. All I can say is, don’t believe the hype.

The most recent example of this are Holiday Retail Sales data. If
you rely upon the Commerce department, then sales are going just swimmingly. However, looking at the actual sales data, you may reach a very different conclusion. 

The nearby chart is a perfect example of the cognitive dissonance that blindly following government data can cause. The WSJ reported today that:

"Data released Friday show why many economists have reservations about
the surveys. At 8:30 a.m. in Washington, the Commerce Department
reported that consumer spending rose in November at the fastest clip in
3½ years. Ninety minutes later, the Reuters/University of Michigan
survey reported that consumer sentiment in December had fallen to a
two-year low — and, excluding the aftermath of Hurricane Katrina, had
hit its lowest level in more than 15 years."   

When two reports are so inopposite to each other, the odds favort hat one is wrong. Rather than take either the Commerce report or the sentiment surveys at face value, why not take a closer look at the various retail sales data we can find to prove — or disprove — about these conflicting reports.

First, let’s note that the Bureau of Economic Analysis Personal consumption expenditures (PCE) increased $110.6 billion, or 1.1% last month. To put that into context, this was ~triple the October gain, and was the highest sales increase in three and half years. Given all that has been going on in the world of credit crunch, housing, food and energy prices, that seemed unlikely to me. 

Let’s see what the spending data shows:

Durable goods increased 0.329%
Nondurable goods soared 2.005%.
Service spending increased 0.839%

Personal Spending in ‘Chained Dollars’ (meaning, inflation adjusted dollars) was +0.6% in November.  Ex-food & energy it is 0.2%. 

So to put all this econo-statistical gobbledy-gook into plain old English, food and energy price increases accounted for a full two thirds (67%) of the November spending gains. So much for ya merry retail Christmas.

Does any of the other data support this conclusion, torn straight from the pages of the Commerce Department?

In fact, there is a quite a bit of data supporting the Commerce Department data:

• Real incomes are declining: BEA reported that "Real disposable
personal income  (DPI) — DPI adjusted to remove price changes –
decreased 0.3 percent in November, compared with a decrease of 0.2
percent in October."  Inflation adjusted after-tax income continues to fall.

• Consumers are being squeezed: How long can you sustain income increases of 0.4% and spending increases of 1.1%? Especially if your Real Income is declining.  

• Shopper Trak says retail sales declined in the seven days ended Dec. 15, the third straight weekly decline

• Target executives admitted that customer traffic — the total number of customers
walking into Target’s stores — had dropped.

Based upon these and other data points, I find it hard to believe that consumer spending rose in November at the fastest clip in
3½ years. Instead, it appears that price increases are accounting for the biggest percentage gains in sales. (Your mileage may vary).


Some of my trader buddies call all of the above the "Blah blah blah." To them, price is everything. For those you traders who believe that everything but the chart is noise, consider the chart of the S&P Retail Index:

With the S&P500 up 6.5% YTD, the Retail index is down 15.3%.



That’s not exactly the sort of chart one would expect to see — under performing by 20% — if Retail sales were all that buff. 


I am not telling anyone they need to believe as I do. But when I read mindless cheerleading, the flawed  interpretation of data, the spin, wingnuttery and general hackdom (insert your own links here), I am compelled to call the cretins and neer-do-wells on their shenanigans and bullshit.

I let the data do the talking. Cause in a face-to-face, I would have otherwise believed the liars . . .



Personal Income and Outlays, November 2007
BEA, December 21, 2007

Full release (and tables) PDF

Holiday Spending May Defy Gloom Of Consumer Polls
WSJ, December 24, 2007; Page A1
(free Google News Version)

How the Cooling Economy Is Stealing Target’s Christmas
NYT, December 24, 2007 

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