Tuesday, July 16, 2013

Something Amiss With Retail Sales Numbers

by Lance Roberts

The recent release of the June retail sales number was largely ignored by the financial markets.  Yes, the number did come in weaker than expected but there were some important things to pay much closer attention to.  Econoday stated:

"Retail sales disappointed in June. The headline number was moderately healthy but expectations were high and the detail was even more disappointing. Retail sales gained 0.4 percent, in June following an increase of 0.5 percent in May. Analysts projected a 0.8 percent jump. The latest boost got a lot of lift from autos and gasoline. Motor vehicles rose 1.8 percent after a 1.4 percent advance in May. Ex-auto sales were flat after rising 0.3 percent in May. Expectations were for a 0.5 percent increase. Weakness was despite a rise in gasoline sales which increased 0.7 percent, following a 0.4 percent gain the month before. Excluding both autos and gasoline components, sales declined 0.1 percent after gaining 0.3 percent in May.

Within the core, weakness was led by miscellaneous store retailers (down 2.5 percent) and building materials & garden supplies (down 2.2 percent). However, wet weather may have dampened sales in the latter. Declines were also seen in electronics & appliances, food & beverages, and food services & drinking places."

There are a couple of important points to make in regards to Econoday's analysis.  First, rising oil prices, now at $106 a barrel, has yet to be fully reflected in gasoline prices.  Retail sales are adjusted for the "dollars spent by consumers on gasoline at retail gas stations." Therefore, rising gas prices equates to a higher "dollar volume" of retail sales yet consumers are NOT buying MORE gasoline - they are paying more for the SAME AMOUNT they were buying previously.

Secondly, the declines in sales in food & beverages, food services and drinking places doesn't bode well for future employment number considering this where the bulk of the recent part-time job increases were located.

Lastly, auto sales have been boosted by creating financing and large incentives.  With rising deliquencies in auto loans the sustainability in recent sales trends is questionable.

However, the most disturbing issue with the retail sales number was noted by Zero Hedge:

"By now everyone knows that when all else fails with propaganda data manipulation, the US government goes right to Plan B: the X-12-ARIMA seasonal adjustment program (full 257 instruction manual here). It most certainly did that in June. The chart below shows the June difference between Seasonally Adjusted and Non-Seasonally Adjusted headline data: a positive number means that contrary to the empirical seasonal adjustment data of the past 15 years, NSA was lower than SA, implying an abnormal boost to seasonal adjustments to make June appear far, far better than the actual NSA data implies. Well, try to find which June of the past 15 is an outlier..."


The abnormal seasonal adjustment is truly unexplainable and certainly smacks of something amiss in the most recent data.  However, as show in the chart below, the most recent bounce in the data doesn't really change the directional trend of the 12-month average of the data.


The rise in energy prices is a dual-edged sword.  On one hand it will boost retail sales in the next monthly report yet it also reduces the amount of dollars spent in other areas of the economy.  This contributes to the real concern which is that the trend of the 12-month average of retail sales is clearly negative and is approaching levels that has historically warned of the onset of an economic recession.

With the Fed continuing to inject the economic system with unprecedented levels of artificial intervention - the economy has remained stuck at a sub-par growth rate.  The recent inflows of economic data suggest that the Q2-GDP report will likely be even weaker than Q1 of this year.  The problem is that the current rate of economic growth remains far to weak to generate the kind sustainable organic activity needed to become self-sufficient. This is why, as I stated just recently, the Fed may well have stumbled into a "liquidity trap" from which it may find extremely difficult to escape.

Like I said at the beginning - this retail data will need to be watched closely over the next couple of months.  There is something definitely not "right" about the most recent data.

See the original article >>

No comments:

Post a Comment

Follow Us