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September 14, 2006
Retail sales: glass half-full or half-empty?
Time for another economic Rorschach test. Retail sales increased by 0.2% in August. Considerably lower than the 1.4% increase in July, but many forecasters were expecting a decline. How you interpret this says a lot about your outlook on the economy.
So let's look at how the media is treating the news...
U.S. retail sales unexpectedly increased during August after an early-summer surge even though gas-station sales fell and consumers slowed furniture purchases.
...
"Remember how we all thought that consumer spending would eventually tank, weighted down by high energy costs and the end of the housing boom?" asked Joel Naroff of Naroff Economic Advisors. "The rumors of the consumers' demise remain just that," the economist said, citing prices -- not a lack of demand -- as the reason for soft spending gains.
...
Stephen Stanley, chief economist at RBS Greenwich Capital, said that gasoline prices have fallen by nearly 50 cents per gallon since hitting their highs in early August. He said this should provide a big boon to consumer spending in coming months.
"Consumer spending is going to explode, probably in September, October and maybe November," he predicted.
Looks like they see the glass as half-full. Now to the NY TImes...
WASHINGTON (AP) -- Retail sales in August posted the weakest showing in two months as worried consumers curbed their spending habits.
How's that for an opener?
The Commerce Department reported that the nation's retailers saw a tiny 0.2 percent increase last month following a much bigger 1.4 percent rise in July. It was the weakest performance since sales had actually fallen by 0.5 percent in June.
...
The tiny 0.2 percent rise in retail sales in August was slightly better than analysts had been expecting. They were forecasting an outright decline in sales of around 0.2 percent.
Can someone buy them a thesaurus? Is using the word "tiny" twice in this story a bit of overkill?
...
While the sharp slowdown had raised concerns of a possible recession, economists have grown less concerned about that possibility because of a retreat in oil prices, which have declined significantly from their mid-July highs.
The decline in gasoline prices is expected to show up in stronger retail sales in coming months as consumers have more to spend on other items because they will be paying less to fill up their tanks.
Stephen Stanley, chief economist at RBS Greenwich Capital, said that gasoline prices have fallen by nearly 50 cents per gallon since hitting their highs in early August. He said this should provide a big boon to consumer spending in coming months.
''Consumer spending is going to explode, probably in September, October and maybe November,'' he predicted.
For the record, the WSJ story is by Jeff Bater. The Times took theirs from the AP. The Times starts out in a very depressing tone but then works in the same quote from Stanley. Two uses of the word "tiny" followed by a statement that economists are less worried about recession. Looks like they want to see the glass as half-empty but do not want to totally ignore the positive. I think they are hoping you will be so discouraged by the first paragraph that you'll just move on.
Finally we have CNNMoney.com...
Retail sales rose moderately in August versus forecasts for a decline, the government said Thursday, but the gain was tempered by a slowdown in auto sales.
To me this is the most reasonable and accurate opener of the three. Later in the article...
"I am puzzled by this report. There seems to be somewhat of a disconnect," said Scott Hoyt, economist with Economy.com, noting he expects the government will revise retail sales for September lower later this year.
"Whenever you've got a strange disconnect like this, you almost always have to anticipate it," Hoyt said.
Ian Shepherdson, chief economist with High Frequency Economics, seemed to agree.
"Overall, this report is softer than it looks,' Shepherdson said in a note. "The headline is flattered by an inexplicable increase in auto sales, which cannot be squared with the 6.3 percent drop in unit sales reported by the automakers. Expect a downward revision."
At the same time, the recent retreat in gas prices helped to divert consumers' dollars and lift sales of products in other discretionary categories.
Sales at gas stations fell 1 percent last month compared to a 1.6 percent gain the previous month.
Food and beverage sales rose 0.6 percent. Sales of sporting goods, books, music and movie DVDs increased 0.8 percent. General merchandise stores posted a 0.4 percent gain.
While the drop in gas prices is clearly a plus for consumer spending, Hoyt pointed out that energy costs, including gasoline, typically represent only about 7 to 8 percent of the household budget.
"It's easy to overdo the gas price effect," Hoyt said. "Housing has a more serious consequence on spending patterns because slowing housing activity has an adverse effect on household wealth and mortgage equity withdrawals. With a cooling housing market, consumers have less cash to pull from their homes to spend elsewhere like electronics and furniture."
This article did a really nice job of tying it all together. I'd say it's more of a glass half-empty story. Sorry to disappoint you. But it is quite reasoned and consistent.
What do you think about the contrast between Stanley in the Journal and Times articles and Hoyt in the CNNMoney article? Is consumer spending going to "explode" now that gas prices are coming down? Or does the fact that gasoline (and energy in general) make up a relatively small fraction of the total household budget mean that we should be careful about reading too much into that? Is this a case of a report that is so anomalous that we should expect a revision and discount it until seeing if that revision is made?
If you want to tackle these questions or if you have other sightings of half-full vs. half-empty thinking, post them to the comments.
In other news, initial jobless claims hit a seven week low. That makes me a bit more confident in thinking that the labor market still has a bit of life left in it.
UPDATE: Commenter "zinc" inspires me to look at the confidence interval for this estimate (something that I do not recall seeing anyone in the MSM or the blogosphere cite either). So, for the curious, here is a link to the Census Bureau news release. Go to the link for the complete tables and charts. Here is the summary:
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $368.2 billion, an increase of 0.2 percent (±0.7%)* from the previous month and up 6.7 percent (±0.7%) from August 2005. Total sales for the June through August 2006 period were up 5.6 percent (±0.5%) from the same period a year ago. The June to July 2006 percent change was unrevised from +1.4 percent (± 0.3%).
Retail trade sales were up 0.2 percent (±0.7%)* from July and were 6.6 percent (±0.8%) above last year. Nonstore retailers were up 12.5 percent (±4.5%) from August 2005 and sales of gasoline stations were up 11.0 percent (±2.0%) from last year.
As they point out...
* The 90 percent confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different than zero.
In all of the excitement from the cheerleaders and the doom-and-gloom from the pessimists, I did not once see anyone mention the confidence intervals. (Correct me if I'm wrong and missed it somewhere.) As the MSM articles I cited make abundantly clear, the MSM certainly didn't take the time to worry about such things (nor did the analysts they quoted).
Now, that is not to say that the data is useless. The overall trend paints a better picture. One data point alone does not provide a lot of information. In fact this one really makes me wonder about whether and how much it will be revised. James Hamilton looks at the trend and comes to the same conclusion that I do... that this is much ado about nothing.
This is why we have blogs and why blogs have commenters.
To answer "zinc"'s other questions, these are nominal (not real) and the widely quoted 0.2% is monthly.
UPDATE 2: Mark Thoma has even more.
Posted by William Polley at September 14, 2006 10:35 AM
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Comments
Can we even measure 0.2 %? I don't think so. I can't discern if the the retail sales are "nominal" or "real", annualized or monthly. Anecdotely, I have noticed quite a few price increases in items. Not little 1% gains but 15 - 25 %.
In the end, I am suspicious of people trying to "lipstick on the pig". The gov may be planning to give the patient one last fiscal and monetary shot before the post-election rehab.
There is a tendency for "political" influence over the economic data over the next few months. I read that the congress has decided to not allow the light of day to shine on their annual pork fest budget until after the congressional election. That, to me, is much bigger news. The national budget is one of the major campaign issues and should be vetted prior to the election.
I have been watching the blogosphere for articles.
Posted by: zinc at September 16, 2006 07:23 AM