FLASH UPDATE - June 12, 2008

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

June 12, 2008

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Core Retail Sales Up 0.86%

Unusual Revisions and Seasonal Factors in Data

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A Flash Update will follow tomorrow’s release of May 2008 CPI.
 – Best wishes to all, John Williams

When Mr. Bernanke made his recent comments about the economy showing somewhat better prospects, he likely had been given a heads-up on today’s retail sales report. With unusual revisions and unusual seasonal adjustments helping to spike the number, this particular series may have slipped into the netherworld of political/financial market massaging. Where there may have been some limited effect from tax rebates, such will prove fleeting. The unusually strong retail sales number followed what appeared to be ongoing underreporting of the monthly trade deficit, on Tuesday.

The general outlook remains unchanged, with the inflationary recession in place. The contents of the retail sales report would tend to suggest a weaker- rather than a stronger-than-consensus (around 0.5%) result for tomorrow’s (June 13th) May CPI report. Arguing in the other direction would be the Fed Chairman’s new-found desire to contain inflation. Further details will be discussed in a Flash Update following the CPI release.

Unusual Retail Sales Revisions and Seasonals. The Census Bureau reported seasonally-adjusted May retail sales rose by 1.02% (1.93% net of revisions) +/- 0.6% (95% confidence interval), following a revised 0.41% increase (previously a 0.19% decline) in the April data. On a year-to-year basis, May retail sales rose 2.45%, versus a revised 2.97% (previously 2.03%) gain in April. The real (inflation-adjusted) annual change continued negative, real monthly growth awaits the CPI report.

The monthly upside revisions were unusually large (pushing the 95% confidence interval) and, in addition to automobiles and mail-order houses, included some increases in gasoline station and grocery store sales, suggestive of further catch-up in underreporting of food and energy price increases that never will show up in CPI reporting. Unusual seasonal factors also were in play. Where unadjusted gasoline prices rose by 8.8% in May, per the Energy Information Administration (Department of Energy), seasonally-adjusted gasoline station sales rose by 2.6%. With seasonal factors supposed to take 3.4% away from gasoline prices in May, and where changes in seasonally-adjusted gasoline sales are a surrogate for gas price changes, something appears to be out of alignment here.  

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 — rose by 0.86% in May, versus a revised 0.70% gain (previously a 0.27% decline) in April, against the official aggregate gain of 1.02% in May and the revised gain of 0.41% in April. May "core" retail sales rose by 0.70% year-to-year, versus a revised 0.39% gain (was a 0.30% contraction) in April. Once again, food and energy inflation results appear to have been artificially contained.

Trade Deficit Revisions Still Shy of Reality. The seasonally-adjusted monthly trade deficit for April was reported to have increased to $60.9 billion from a revised $56.5 (previously $58.2 billion) in March. Despite benchmark revisions, the data appear unreliable, with unusual paperwork flows from the ports distorting current reporting. The reported average unit price for imported oil rose in April to $96.81 per barrel, from $89.85 in March, and the average barrels per day reported as imported for April recovered to somewhat more normal levels, but the March number that clearly was so shy of reality (see the June 9, 2008 newsletter) was unrevised in the benchmark data. Accordingly, the current monthly trade deficit appears to remain understated.

In terms of the benchmark revisions, the overall quality of recent reporting does not appear to have improved. The revised monthly data suggest some minor downside revisions to fourth- and first-quarter GDP (currently 0.6% and 0.9% respectively) in the July 27th GDP benchmark revisions, with an added spike to third-quarter 2007 GDP, which already is at an unbelievable 4.9% annualized real growth rate.

Full details will be covered in the next newsletter.

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The U.S. economy remains in an intensifying inflationary recession, while the banking solvency issues fester. 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 should be near the end of June. Intervening Flash Updates and Alerts will be posted as needed. All postings will be advised by e-mail.