No. 271: December Retail Sales
JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS
COMMENTARY NUMBER 271
December Retail Sales
January 14, 2010
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Bad Seasonals Continue to Bloat
Reported Retail Sales
2009 Holiday Season Was a Bust
Both Before and After Inflation Adjustment
Using Normal Seasonal Factors
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PLEASE NOTE: The next scheduled Commentary is for tomorrow, January 15th, following the release of the December CPI and industrial production. Implications for fourth-quarter GDP reporting from this week’s economic reporting also will be discussed in tomorrow’s missive. An extended newsletter reviewing 2009 and previewing 2010 should follow over the weekend.
– Best wishes to all, John Williams
Depression-Warped Seasonal Factors Continue. Bloated again by seasonal factors that have been heavily distorted by the longest and deepest economic contraction in the post-World War II era of modern economic reporting, today’s (January 14th) December retail sales report — issued by the Census Bureau — indicated a statistically-insignificant, seasonally-adjusted monthly decline of 0.27% (up 0.26% net of revisions) +/- 0.6% (95% confidence interval). Such followed an upwardly revised 1.82% (previously 1.29%) monthly gain in November. Based on traditional seasonal factors outside of the current sharp economic contraction, even with the November revisions, the monthly changes for both November and December retail sales — the peak period of annual retail sales — would have been negative. Those declines hold both before and after adjustment for inflation. See Commentaries Nos. 265 & 269 for further discussion.
On a year-to-year basis, the December year-ago comparison was against not only a bottoming price collapse in gasoline and related activity in gasoline station sales, but also sharp contractions in a number of other areas of retail sales activity. Accordingly, December 2009 retail sales were reported up by 5.36% from December 2008, and also should show as a short-lived spike into positive territory for inflation-adjusted year-to-year change, following what now is larger upside inflation-adjusted annual growth rate for November. Indeed, the December annual gain followed an upwardly-revised annual gain of 2.54% (was 1.90%) in November.
Since those annual gains are based on the seasonally adjusted data, they also are distorted by the economically-impacted portion of the seasonals. The seasonally-adjusted data are used for year-to-year comparisons here, since the portion of adjustments made for variations in trading-days and holidays are meaningful and not distorted by extreme economic conditions.
Real Retail Sales. Removing the effects of inflation, December 2009 retail sales activity should show a monthly contraction, but the annual change will be positive (with November’s revisions) briefly, for a second month, given distorted seasonal factors and the particularly severe monthly contraction seen in December 2008 reporting. The pattern of ongoing, inflation-adjusted activity remains one of bottom-bouncing/plateauing at extremely low levels. Details will be updated and graphed with the Commentary following tomorrow’s (January 15th) release of the December CPI.
Core Retail Sales. A change in "core retail sales" methodology was introduced four months ago, where the net relative monthly increases and/or decreases in gasoline station and grocery store sales were subtracted from the full monthly retail sales number, instead of the total of gasoline station and grocery store sales each month. Assuming that the bulk of non-seasonal variability in food and gasoline sales is in pricing, instead of demand, the revamped reported "core" change more closely reflects the actual retail sales experience. This remains a work in progress and eventually will be used in the development of additional SGS alternative economic measures.
For the near-term, the "core" retail sales is reported in two versions, where Version I uses the original methodology, and Version II version appears to provide a more balanced picture of the impact food and energy inflation in the standard retail sales reporting.
Consistent with the Federal Reserve’s predilection for ignoring food and energy prices when "core" inflation is lower than full inflation, "core" retail sales:
Version I — December retail sales net of total grocery store and gasoline station revenues — fell by 0.4% (zero growth net of revisions) versus the official aggregate decline of 0.3%.
Version II — December retail sales net of the monthly change in grocery store and gasoline station revenues — fell by 0.3% (up 0.9% net of revisions) versus the official aggregate loss of 0.3%.
Reported November Trade Deficit Widened. The Census Bureau and Bureau of Economic Analysis reported that the seasonally-adjusted November trade deficit widened to $36.4 billion (by 9.6%) from a revised $33.2 (previously $32.9) billion in October. Imports rose faster than exports, with the trade deterioration partially reflecting an increase in the average price of imported oil, from $67.39 per barrel in October, to $72.54 in November, while physical oil imports remained soft at 8.2 million barrels per day, down from 8.7 million In November 2008.
Net of oil-price changes and other inflation factors, the November deficit widen by 6.2% against October, with the pace of the fourth-quarter’s inflation-adjusted deficit (as used in the GDP) running slightly worse than in the third-quarter. Such is a minor negative for fourth-quarter GDP.
On top of likely seasonal-factor distortions, it still appears as though irregular paperwork flows through Customs are impairing the reporting accuracy of imports.
Week Ahead. Given the underlying reality of a weaker economy and a more serious inflation problem than generally is expected by the financial markets, risks to reporting will tend towards higher-than-expected inflation and weaker-than-expected economic reporting in the months ahead. Such is true especially for economic reporting net of prior-period revisions. As discussed in Commentary No. 269, key series appear to have been distorted by seasonal factors warped by the extraordinary length and depth of the current downturn, one which is unprecedented in the period of modern economic reporting of the post World War II era. Particular issues are mentioned with individual series.
Next week’s December PPI and housing starts reporting will be discussed in tomorrow’s Commentary. The CPI and industrial production comments that follow are unchanged from the Commentary No. 270.
Consumer Price Index (December 2009). Due for release tomorrow, Friday, January 15th, the consensus for the CPI-U is for a 0.2% seasonally-adjusted monthly gain, per Briefing.com, versus 0.4% reported for November. The consensus usually tends to overestimate December CPI, but even here, unusual seasonal factors could offer a surprise either way.
Annual inflation would increase or decrease in December 2009 reporting, dependent on the seasonally-adjusted monthly change, versus the 0.79% adjusted monthly decline seen in December 2008. I use the adjusted change here, since that is how consensus expectations are expressed. To approximate the annual inflation rate for December 2009, the difference in December’s headline monthly change versus the year-ago monthly change should be added to or subtracted directly from November 2009’s annual inflation rate of 1.84%. A consensus report of a seasonally-adjusted 0.2% monthly gain would result in year-to-year or annual December 2009 CPI-U inflation rate of roughly 2.8%.
Industrial Production (December 2009). Due for release tomorrow, Friday, January 15th, December production could be skewed heavily to the upside by bad seasonal factors, as shown in the purchasing managers manufacturing survey discussed in Commentary No. 269. The Fed, however, has been sensitive to the general problem of current seasonal factors and production may come in below consensus estimates of a 0.6% monthly gain (Briefing.com), against November’s 0.8% increase.
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