FLASH UPDATE - January 14, 2009

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

January 14, 2009

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Retail Sales Plummet Worse Than Headline Number

Pattern Continues of Downward Revisions to
Previously Stronger Headline Economic Numbers

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PLEASE NOTE: A Flash Update will follow Friday’s (January 16th) release of the December CPI. With consensus expectations still running near a gasoline-driven 1.0% monthly drop for the CPI-U (Briefing.com), a shallow but short-lived annual deflation may show in the December reporting.

– Best wishes to all, John Williams

Nominal or Real, Monthly or Annual, Retail Sales Plunge Deepened. As seen with considerable consistency in many economic series — most recently in the reporting trends of nonfarm payrolls and this morning’s (January 14th) retail sales report — horrendously negative numbers would have been even worse but for the muting effects of downward revisions to prior-period reporting. What is suggested here is that there are upside (perhaps simply non-recession) biases built into the assumptions of the initial reporting of a number of key series, where full data are not available immediately. Subsequent reporting with greater detail then has shown weaker than initially-reported results, time and again. Politically, it is safer to have erred showing a stronger than actual result, as opposed to showing a weaker than actual result.

The Census Bureau reported seasonally-adjusted retail sales for the month of December — the selling climax of the holiday season — to have fallen by 2.66% +/- 0.6% (95% confidence interval), but that would have been an even more severe monthly contraction of 3.49%, without a downward revision to the November estimate. Previously reported as 1.76% decline, the November monthly contraction now stands at 2.13%. On a year-to-year basis, December retail sales collapsed by 9.81%, versus a revised 8.21% (previously a 7.41%) drop in November.     

The monthly and annual declines, once again, were exacerbated by a fall in gasoline prices, which have started to turn higher, so far in January. Yet, allowing for the anticipated drop in December’s CPI-U inflation, both the monthly and annual retail sales declines will remain severe in "real" terms, net of inflation adjustment. Real growth rates will be published along with CPI Flash Update on Friday.

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 — fell by 1.39% (down 1.86% net of revisions) in December, following a revised 0.24% (previously 0.30%) decline in November. Those numbers contrasted with the official aggregate drops of 2.66% in December and the revised 2.13% in November.  On an annual basis, December "core" retail sales fell by 7.88%, versus a revised 7.41% (was 6.92%) decline in November.

Rolling 12-Month Federal Deficit Hits $833.2 Billion in December.   Fiscal conditions continue to deteriorate as "solutions" to the financial system’s solvency crisis and the deepening recession take their respective tolls. In the first three months of fiscal 2009 (year-end September 30th), the official deficit widened to $485.2 billion from $105.5 billion the year before. Accordingly, the 12-month rolling deficit through December rose to $833.2 billion, up from November’s $701.3 billion, October’s $635.1 billion and September’s $454.8 billion. In contrast, the 12-month rolling deficit through December 2007 was just $187.9 billion.

In line with the discussion in the January 9th Flash Update, the 2009 official budget deficit is highly likely to top $2 trillion, with commensurate funding required by the U.S. Treasury.

Trade Deficit in Unusual Plunge. The Bureau of Economic Analysis and the Census Bureau reported that the seasonally-adjusted monthly trade deficit for November narrowed sharply to $40.4 billion, from a revised $56.7 billion (was $57.2 billion). Despite part of the reported improvement coming from lower oil prices on imported oil, the inflation-adjusted number still showed significant enough improvement to soften the anticipated upcoming contraction in fourth-quarter GDP growth, meaningfully.

Still with some downside potential, the average price of imported oil dropped to $66.72 per barrel in November, down from $92.02 in October.   Physical oil imports, however, also showed an unusual and unseasonal plunge, dropping to 8.7 million barrels per day in November, from 10.5 million in October. In 2007, imports ran 10.0 million barrels per day in November, versus 10.2 million in October. 

Those numbers, plus the extreme drop-off seen otherwise in imports suggest there may have been some irregular flow of import paperwork in current reporting. Revisions in the next two months should determine that. Reporting of this series has been otherwise troubled during the last year. Removing the impact of oil, trade flows rarely shift as sharply and as quickly as indicated here, particularly in response to a deepening recession.  

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