October Retail Sales Gain Not Statistically Meaningful, Distortions Continued from Poor-Quality Seasonal Adjustments.  As has been the case in five of the last six months, even before adjustment for inflation, the monthly change in October retail sales was not statistically meaningful.  Further, concurrent seasonal factor issues, and broader distortions seen otherwise in current seasonal factors, as discussed in the Hyperinflation Special Report (2011), continued.  The stability of the seasonal-adjustment process has been disrupted severely by the unprecedented depth and length of the current economic downturn in the post-World War II era (the period of modern economic reporting).

As noted recent Commentaries, monthly changes reported in series such as payroll employment and new orders for durable goods—in addition to the retail sales series—remain within the realm of statistical meaninglessness, which leave the markets effectively flying blind as to actual underlying economic activity.  In such circumstances, looking at broad underlying fundamentals may be useful.  As discussed in Commentary No. 394 and Commentary No. 398, consumer income and credit remain structurally impaired, continuing to signal economic deterioration, not recovery.  The broad economy remains in serious trouble, as will be discussed anew in the November 17th Special Commentary.

Nominal (Not-Adjusted-for-Inflation) Retail Sales.  Today’s (November 15th) report on October 2011 retail sales—issued by the Census Bureau—indicated a statistically-insignificant, seasonally-adjusted monthly gain of 0.54% (up by 0.55% before prior-period revisions) +/- 0.6% (95% confidence interval).  October’s increase was on top of a revised 1.14% (previously 1.13%) monthly increase in September.

On a year-to-year basis, October 2011 retail sales were reported up by 7.25%, a somewhat slower pace than seen in the revised year-to-year September 2011 gain of 7.95% (previously 7.94%).    

Real (Inflation-Adjusted) Retail Sales.  Details on real retail sales for October will be published in tomorrow’s November 16th Commentary, along with details on the October 2011 CPI-U release.  While October CPI-U inflation likely will flat-to-positive (see Week Ahead), the monthly gain should not top the 0.5% nominal growth reported in monthly sales.  As a result, real retail sales for October most likely will show a month-to-month gain, although any gain still will not be statistically meaningful.

Core Retail Sales.  Assuming that the bulk of non-seasonal variability in food and gasoline sales is in pricing, instead of demand, “core” retail sales—consistent with the Federal Reserve’s preference for ignoring food and energy prices when “core” inflation is lower than full inflation—are estimated using two approaches:

Version I: October 2011 versus September 2011 seasonally-adjusted retail sales—net of total grocery store and gasoline station revenues—was up by 0.54%, versus an official gain of 0.54%.

Version II: October 2011 versus September 2011 seasonally-adjusted retail sales—net of the monthly change in revenues for grocery stores and gas stations—was up by 0.45%, versus an official gain of 0.54%.

Monthly Wholesale Inflation Fell by 0.3% in October, Up 5.9% Year-to-Year.  As reported today, November 15th, by the Bureau of Labor Statistics (BLS), the regularly-volatile, seasonally-adjusted finished-goods producer price index (PPI) for October declined by 0.3% (also down by 0.3% unadjusted) month-to-month, following a month-to-month seasonally-adjusted gain of 0.8% (up by 0.5% unadjusted) in September.  October’s monthly inflation drop primarily reflected a short-lived dip in monthly oil and gasoline prices.

Unadjusted and year-to-year, October 2011’s PPI inflation eased to 5.9% from 6.9% in September.  The relatively high level of annual PPI inflation generally has reflected ongoing impact of the Fed’s dollar-debasement policies, not surging economic demand.  Annual changes now are going against the year-ago period when Mr. Bernanke was jawboning QE2 and meeting with some early success in debasing the U.S. Dollar. 

October finished goods inflation increasingly reflected ongoing inflation pressures from the spreading impact of higher oil prices outside the energy sector.  The “core” finished goods inflation—net of food and energy inflation—rose to 2.8% year-to-year (unadjusted) in October from 2.5% in September.

Separately, on a monthly basis, seasonally-adjusted October 2011 intermediate goods prices fell by 1.1%, versus a gain of 0.6% in September, with October crude goods prices down by 2.5%, following a 2.8% increase in September.  Year-to-year inflation in unadjusted October intermediate goods was 8.3%, versus 10.5% in September, with October’s annual inflation in crude goods at 12.6%, versus September’s 20.9% pace.