JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

COMMENTARY NUMBER 271
December Retail Sales

 January 14, 2010

__________

Bad Seasonals Continue to Bloat
Reported Retail Sales

2009 Holiday Season Was a Bust
Both Before and After Inflation Adjustment
Using
Normal Seasonal Factors

__________

 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%.

{trade_deficit  November 2009}}

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.