FLASH UPDATE - September 15, 2009

 

 

 

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

 

FLASH UPDATE

September 15, 2009

 

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2.7% Retail Sales Jump Reflected Inflation and
One-Time Clunker Spikes

"Core" Retail Sales Up 2.0% (0.2% Net of Clunkers)

Wholesale Inflation Soared with Oil

 

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PLEASE NOTE: The next planned Flash Update is for tomorrow, Wednesday, September 16th, following the August CPI and industrial production reports.

– Best wishes to all, John Williams

 


August Retail Sales Gain Primarily Reflected Clunkers and Inflation. This morning’s (September 15th) Census Bureau report indicated a statistically-significant monthly increase of 2.67% (2.66% net of revisions) +/- 0.6% (95% confidence interval) in seasonally-adjusted August retail sales. Such followed a revised 0.18% (previously 0.05%) monthly decline in July. On a year-to-year basis, August retail sales were down by 5.31%, versus a revised 8.51% (previously 8.31%) decline in July. Allowing for the one-time spike from the clunkers program and the effects of inflation, this pattern of annual change remains one of bottom-bouncing/plateauing at historic low levels.

The bulk of the August monthly gain was generated by the government’s cash-for-clunkers program. Assuming that auto sales otherwise would have been unchanged (as opposed to a more likely contraction), retail sales net of the increase in sales due to the rebate program would have been reported up by 0.87%, which largely was accounted for otherwise by higher food and gasoline prices (see the "core" estimates below).

With strong anecdotal evidence of automobile dealers seeing no follow-through in September sales from the government-spiked August auto sales gains, something of a sharp reversal in next month’s retail sales report could be expected.

Core Retail Sales.  Please note a change in methodology here, where the relative monthly increases and/or decreases in gasoline station and grocery store sales are subtracted from the full monthly retail sales number, instead of the total of gasoline and retail 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. The methodology and historical differences will be detailed more fully in tomorrow’s Flash Update.

Consistent with the Federal Reserve’s predilection for ignoring food and energy prices when "core" inflation is lower than full inflation, "core" retail sales — retail sales net of the net change in grocery store and gasoline station revenues — rose by 2.01% (0.21% net of clunkers), versus a 0.76% gain in July. Those numbers contrasted with the official aggregate gain of 2.67% (0.87% net of clunkers) in August, and a decline of 0.18% in July.    

Real Retail Sales.  Inflation- and seasonally-adjusted August retail sales likely were positive on a monthly basis (given the auto-related spike) and remained sharply lower in terms of annual contraction. Those numbers also will be detailed in tomorrow’s Flash Update, following the release of the August CPI-U. They likely will require special adjustment to handle the Bureau of Labor Statistics’ (BLS) indication that the government-backed rebates would be treated as a reduction to new car prices. See the Week Ahead comments below on CPI expectations.

PPI Inflation Rebounded with Oil and Seasonal Adjustments. As reported by the BLS this morning (September 15th), the regularly-volatile, seasonally-adjusted producer price index (PPI) rose by 1.7% (1.0% unadjusted) month-to-month in August, following a 0.9% (0.9% unadjusted as well) monthly contraction in July. Year-to-year, the annual contraction in PPI inflation narrowed, with August prices down by 4.3%, versus a 6.8% annual contraction in July. The August PPI reflected both higher oil prices and a boost to energy costs from friendly seasonal adjustments.

On a monthly basis, seasonally-adjusted August intermediate goods rose by 1.8% (down by 0.2% in July), with August crude goods increasing by 3.8% (falling by 4.5% in July). The decline in year-to-year inflation narrowed, with August intermediate goods down by 12.3% (down by 15.1% in July) and August crude goods down by 35.2% (down by 44.8% in July).

Week Ahead. The assessments published in the September 12th Flash Update basically are unchanged:

Consumer Price Index (CPI). The August CPI is due for release on Wednesday (September 16th). Consensus expectations have softened to a 0.3% monthly gain per Briefing.com.   Reporting risk is to the downside of expectations, due to clunkers pressures, but, even so, year-to-year inflation for August should be no worse than in July, with July/August setting the trough in the annual CPI inflation rate for the current cycle.

Given higher gasoline prices and favorable seasonal factors, a stronger-than-consensus number would be in the works, but for the cash-for-clunkers program. Despite dealers (in theory) receiving full cash payment for the consumers’ government rebates, as reflected in retail sales reporting; and despite some states assessing sales tax on those rebates; and despite the clunkers turned in by consumers having some monetary value; the BLS will reduce the prices of new automobiles in the August CPI for the rebates. The impact of this reporting could be enough to knock 0.3% off the monthly CPI, although it should reverse in September.

Allowing for an unchanged monthly CPI in August 2009, the year-to-year CPI inflation rate still would be around July’s level. Annual inflation would increase or decrease, dependent on the seasonally-adjusted monthly change, versus the "flat" (0.02% decline) adjusted monthly change seen in August 2008.  I use the adjusted change here, since that is how consensus expectations are expressed. The difference in growth would directly add to or subtract from July’s annual inflation rate of negative 2.10%.

Industrial Production. August industrial production is due for release on Wednesday (September 16th). Relatively strong expectations (a monthly gain of 0.7% per Briefing.com) are at some risk of disappointment here, given a lack of follow-through auto sales and continued cooler-than-usual weather depressing utility usage and production measures indexed to utility activity. The series likely will continue bottom-bouncing, beyond any temporary clunkers blip.  

Housing Starts. August housing starts detail is due for release on Thursday (September 17th). The series should continue to show bottom-bouncing at a low-level plateau, with reported seasonally-adjusted month-to-month change likely to lack statistical significance.

 

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