JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

May 14, 2008

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April’s Core Retail Sales Fell 0.3%

Thank Goodness for Seasonal Factors and Collapsing Gasoline Prices

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An intensifying inflationary recession continues — and the general outlook remains the same — despite increasing irregularities in the reporting of the government’s more popular economic series.

The purported lack of energy inflation in the April CPI was no more credible than the 0.6% growth reported for first-quarter GDP or April’s 20,000 payroll decline. It appears that the Bureau of Labor Statistics (BLS) felt awkward enough publishing a report that showed gasoline prices plummeting by a seasonally-adjusted 2.0% in April that it put out a special boxed statement that had the effect of obfuscating what was being reported in the numbers a little bit.

The BLS stated: "Gasoline prices rose 5.6 percent in April. Compared to a year ago, these prices were up 20.9 percent. Gasoline prices increase seasonally during the first five months of the year, with the largest increases occurring in March and April and decline seasonally for the remainder of the year."

While it sounded like gasoline prices rose, which they did, the statement did not make clear that seasonally-adjusted gasoline prices used in calculating the headline number declined by 2.0% for the month, while it was the unadjusted monthly change with the gain of 5.6%. Of course, the financial media and markets concentrate on the seasonally-adjusted aggregate series, which rose just 0.2% for the month, thanks to the reported weakness in gasoline.

While there is a seasonal pattern to gasoline prices, suggestions that the recent surge in gasoline prices — in tandem with record high oil prices — is more than accounted for by normal seasonal variation simply is not credible. Beyond the adjustment issues, which also have started to mirror the seasonal-factor gimmicks that appear to be spiking the monthly payroll employment numbers (see the Flash Update of May 2nd), the recent benchmark revision to retail sales showed that historical gasoline price inflation had been revised higher over recent years. This suggests there also may have been some parallel historical gasoline inflation understatement in the CPI, but the CPI (officially reported as an unadjusted series) does not get revised.

CPI. Moving further away from common experience, the BLS reported the seasonally-adjusted April CPI-U gained just 0.21% (0.61% unadjusted) +/- 0.12% for the month, versus the 0.34% (0.87% unadjusted) gain reported in March. April’s annual CPI inflation softened minimally to 3.94% from March’s 3.98%.

Indeed, seasonal factors are significant in depressing current reported CPI growth. On an annualized basis through April, seasonally-adjusted inflation was running at 2.95%, while unadjusted inflation was running at 6.99%.

One way to avoid seasonal adjustment games is to look at year-to-year changes in the monthly index levels, which should be virtually the same on both an adjusted and unadjusted basis. That was not the case in April. Applying the unadjusted annual change to the adjusted reporting of the year before, the current seasonally-adjusted CPI-U would have been up by the consensus estimate of 0.3%, instead of the lower-than-expected 0.2% reporting result.

Year-to-year annual inflation would resume its upturn in May 2008 reporting, dependent on the seasonally-adjusted monthly gain exceeding the 0.46% monthly increase seen in May 2007. The actual difference would directly add to or subtract from April’s annual inflation rate of 3.94%.

Annual inflation for the Chain Weighted CPI-U (C-CPI-U) — the substitution-based series that increasingly gets touted by the inflation apologists as the replacement for the CPI-U — was 3.45% in April, down from 3.55% in March.

Adjusted to pre-Clinton (1990) methodology, annual CPI growth held at 7.3% in April, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was roughly 11.5%, versus 11.6% in March. The alternate numbers are not adjusted for any near-term manipulations of the data.

Retail Sales. The Census Bureau reported seasonally-adjusted April retail sales declined by 0.19% (down 0.86% net of benchmark revisions) +/- 0.6% (95% confidence interval), following a 0.20% increase in the re-benchmarked monthly March data. On a year-to-year basis, April retail sales rose 2.03% versus a revised 2.03% (previously 1.97%) in March. The real (inflation-adjusted) monthly change continued negative, as did the real annual change.

Core Retail Sales. Consistent with the Federal Reserve’s predilection for ignoring food and energy prices, "core" retail sales — retail sales net of grocery store and gasoline station revenues — were down by 0.3% in April, versus a 0.1% decline in March, against the official aggregate loss of 0.2% in April and gain of 0.2% in March. "Core" retail sales remained negative year-to-year, down 0.3% for April, following a 0.6% loss in March. As with the CPI, imputed gasoline prices actually were reported down for the month.

The retail sales benchmark revision and core analysis, however, also show that the revamped data reflected higher food and energy inflation than previously reported. Where the aggregate April number showed a 0.2% contraction, which was a 0.9% decline net of revisions, the core decline of 0.3% was a decline of 4.2% net of revisions.

Full details on the various economic reporting will be covered in the next newsletter. 

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Continuing market turmoil, central-bank/government intervention (particularly in the currency and gold markets), increasing economic data distortions and ongoing systemic shocks remain within the general outlook, which is unchanged.

Publication of the next regular newsletter is targeted for around May 26th, with intervening Flash Updates and Alerts posted as needed. All postings will be advised by e-mail.