Advance Retail Sales Aren’t What They Seem

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I’m putting on my “robe and economist hat” here. The estimate of January Retail Sales just came out at +0.3%, compared to a consensus estimate of -0.3%. Because of this, futures are up sharply this morning, and the terrible, terrible recession of the first two weeks of January, 2008, is but a distant memory (remember how bad that recession was? Now we can look back and laugh…)

Anyway, traders just see the number, see it was a huge bullish upset, and then buybuybuy. I looked at the actual statement, and found this wording in the opening text (emphasis mine):

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $382.9 billion, an increase of 0.3 percent (±0.5%)* from the previous month and 3.9 percent (±0.7%) above January 2007.

Basically, they look at the sales revenue and see if it’s higher than previous months / years. These numbers do NOT take into account changes in prices! With inflation numbers ex-food and energy nearing 0.2 to 0.3%, retail sales barely broke even on a real basis. But just eyeballing the data, it seems that everything dropped or stayed basically the same from the December estimate except:

*Motor Vehicles & Parts Dealers
*Food and Beverage Stores
*Pharmacies and Drug Stores
*Gasoline Stations
*Nonstore Retailers (think Amazon.com) was a smaller player

Gasoline was a big hitter in both a percent change and actual dollar value in the estimate. So basically, if sales were up at all, it’s because people spent more on gas, food (not restaurants as that dropped, but grocery stores) and drugs. Arguably, they spent more, but could have purchased less due to neglecting price changes as stated above. Further, these categories are necessities, and I wouldn’t hang my hat on these leading the way out of a recession. These are defensive purchases, and the discretionary items (like electronics, sporting goods/hobby stores, department stores etc.) are flat or worse.

So buybuybuy! Load up the truck on retailers! The number was up! :p I’m not going to call the recession over just yet. The consumer is still taking blows to the head, and the reported number is not what it seems to be.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com