Last week the markets reacted very strongly to the retail services report from the Census Bureau that said they went up 1.1%. The only problem with that conclusion is that they didn’t go up.
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $395.5 billion, an increase of 1.1 percent (±0.5%) from the previous month and 7.9 percent (±0.7%) above September 2010. Total sales for the July through September 2011 period were up 8.0 percent (±0.7%) from the same period a year ago. The July to August 2011 percent change was revised from virtually unchanged (±0.5%)* to +0.3 percent (±0.2%). Retail trade sales were up 1.1 percent (±0.5%) from August 2011, and 8.1 percent (±0.7%) above last year. Gasoline stations sales were up 20.3 percent (±1.7%) from September 2010 and nonstore retailers sales were up 10.1 percent (±2.3%) from last year.
The reports from the MSM were gushy, for example:
Americans shrugged off deepening gloom about the health of the economy and stepped up their shopping last month … (WSJ)
Retail sales rose in September by the most in seven months, showing American consumers are helping the world’s largest economy fend off a slump. (Bloomberg).
Retail sales in September made quite a comeback, pointing to a consumer that has more life than recently believed. (Econoday)
The problem with the numbers is that they are seasonally adjusted and they are not adjust for price inflation. On an unadjusted basis, retail sales were down 5.2%.
Look at this table from the Census Bureau and you will see that on an unadjusted basis (i.e., what really happened) in September: there was a decrease in sales from the previous month. I highlighted all the businesses that declined over the month in salmon and the ones that went up in light green. Yes, you are correct there are no green ones.
The reasons the Census Bureau adjusts for seasonality is explained by them as follows:
Seasonal movements are often large enough that they mask other characteristics of the data that are of interest to analysts of current economic trends. For example, if each month has a different seasonal tendency toward high or low values it can be difficult to detect the general direction of a time series’ recent monthly movement (increase, decrease, turning point, no change, consistency with another economic indicator, etc.). Seasonal adjustment produces data in which the values of neighboring months are usually easier to compare. Many data users prefer seasonally adjusted data because they want to see those characteristics that seasonal movements tend to mask, especially changes in the direction of the series.
Seasonal Effects: Effects that are reasonably stable in terms of annual timing, direction, and magnitude. Possible causes include natural factors (the weather), administrative measures (starting and ending dates of the school year), and social/cultural/religious traditions (fixed holidays such as Christmas). Effects associated with the dates of moving holidays like Easter are not seasonal in this sense, because they occur in different calendar months depending on the date of the holiday.
Another way to look at seasonality is that it can also mask the general direction of a time series and that is why there are usually further adjustments to previous months’ data. I am not suggesting that the Census Bureau is intentionally gaming the stats, but there is no question that the seasonal adjustment definitely obscures the fact that sales actually went down in September.
What makes the Bureau’s numbers suspicious is that we haven’t had any wage growth (see this chart) and real (inflation adjusted) disposable income went down (-0.3%) in August and real personal consumption expenditures (PCE) went down (-01%) in August. So, if wages aren’t growing, and real PCE is declining, where are the sales coming from? If there are any sales, the money came from savings: in August the personal savings rate declined 0.2% to 4.5%. Dipping into savings is an unhealthy measure of the economy at this point in the cycle.
Also reported last Friday was the University of Michigan’s Consumer Sentiment Index which declined again, stuck as it seems at 2008 levels. This doesn’t reflect a buoyant consumer rushing out to save the economy.
This state of affairs is consistent with our forecasts since early 2010 of stagnation of the economy combined with price inflation. The problem is again misunderstood by the mainstream media and mainstream economists: it isn’t a spending problem, it’s a savings problem. That is we need to continue to liquidate debt and malinvested capital, and increase savings from the organic production of goods and services in order to grow. Calls for consumers to spend are misleading and fruitless.
NB Michael Panzer had a similar conclusion on his blog, but this is our original research and conclusion. But we appreciate Michael’s agreement on this point.