Real Retail Sales Growth Fall to 2003 Levels

Thursday, February 14, 2008 | 06:11 AM

Yesterday, we noted that the market "wanted" to rally, courtesy of its oversold condition. Dropping nearly 5% in the previous week does that to traders. However, there is no need to tilt against windmills -- be it Buffett's Muni bond grab or yesterday's Retail sales data. Smart investors need only look beneath the headlines,  and figure out what is really going on.

Let's use the Retail sales data as an example: Census Bureau reported surprising Retail sales data for January, rising by 0.3% (versus consensus of -0.3%). We stated this reflected energy inflation, not sales growth. Some people disagreed with that assessment, so for them, we will go into the details.

Our first chart, via Mike Panzner, shows  year-on-year retail sales (ex-autos). As Mike notes:

"Even that series makes the retail picture look far better than it actually is. When you subtract out gasoline station sales, which have been boosted by rising prices for fuel, the year-on-year change is 2.6%, the lowest pace since April 2003 (see attached). Indeed, gasoline station sales as a percentage of retail sales (ex-auto) recently hit a record high of 13.1% versus a median rate of 9.8% since January 1992."

The chart shows the divergment:

Chart courtesy of Mike Panzner


Why ex-autos? Commerce reports a 0.6% rise in car sales January, while the vehicle manufacturers themselves reported a 6.3% drop in unit sales. The FT noted this differential, quoting Rob Carnell, economist at ING Financial Markets: “There are too many other indicators pointing in the opposite direction for the rise in retail sales in January to be accepted at face value, and we would expect some of this month’s discrepancy to be unwound in the February report."

But even that is still a nominal data series. If we want to see Real Retail Sales, we need to fully adjust for the pernicious effects of inflation. Haver Analytics has done the heavy lifting for us, and as the chart below shows, Real Retail Sales fell to levels not seen in 5 years:



Chart courtesy of Haver Analytics


This is the first negative Real number this cycle. This, strongly suggests a US recession is either underway or due any month now. And that's using CPI as the inflation adjustment factor. Its well understood amongst The Big Picture readers that CPI understates inflation.

Consumers are paying more for Food and Energy, to the point that Real Retail sales are negative. What does this say about future discretionary retail spending?



Overview: Failed muni bond auctions deepen crises
Dave Shellock in London and Michael Mackenzie in New York
FT, February 13 2008 18:20

Thursday, February 14, 2008 | 06:11 AM | Permalink | Comments (26) | TrackBack (2) add to | digg digg this! | technorati add to technorati | email email this post



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UBS Falls to 4-Year Low as Subprime Markdowns Cause Record Loss (Bloomberg) So was this this kitchen sink quarter at UBS? The bank booked a $13.7 billion subprime writedown and a $11.3 billion total loss, whihc, to use and old... [Read More]

Tracked on Feb 14, 2008 7:24:24 AM

» Pay More, Get Less from The Big Picture
Earlier this week, we noted a deceptive rise in Retail Sales that was driven by price increases, not sales gains. Measured in Real terms, the inflation adjusted change in year over year sales actually dropped back to levels not seen since 2003. The NYT... [Read More]

Tracked on Feb 16, 2008 9:16:42 AM


"Yesterday, we noted that the market "wanted" to rally, courtesy of its oversold condition."

With what parameter is the market "oversold"?

I'm seriously wondering what metric says this because nothing I look at says this. I'm starting to think that we have developed a technical bottom and this may be a long, slow U-shaped bottom, but it's on an upward trajectory. Kass seems to agree.


BR: These are just very short term technical measures that follow the recent pinball action:

A 10%, ten day rally led to a 4.5% pullback last week; This suggests a short term oversold condition (overbought/oversold can get relieved by sideways action over time, or by a move in the opposite direction.

A few examples: S&P 500 at the bottom of its Moving Average Envelope, Net New Highs (weekly), 10-Day Momentum, 20-Day Stochastic, Overbought/Oversold Oscillator (weekly), S&P 500 CBOE SPX Volatility Index, Put/Call Ratio, Bull/Bear Ratio, % Bearish surveys, etc.

Most of these are some variation of price action, derived from market data. The last few are survey based.

These are not precise, and they describe when the rubber band gets stretched too far in one direction or another. They work fine -- until the rubber band snaps!

Posted by: Grodge | Feb 14, 2008 7:22:55 AM

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