Good Retail Sales — or Bad?

The initial read on Retail sales was pretty good: The Commerce Department said Retail sales increased by 1.2% over October 2006 2007, and up a huge 6.3% from November 2006.

Year-over-year, Gasoline station sales were up 25% nonstore retailers  (i.e., heating oil) were up 10.7%.

A likely source of sales gains? Inflation.

That’s confirmed by the latest data from the Producer price index (PPI) — it jumped 3.2% in November,
according to the Labor Department. This represents the biggest one-month rise since
August 1973.
The ante has been upped for tomorrow’s Consumer Price Index (CPI) at 8:30 am.

How did inflation impact sales? November gasoline-station sales increased by a whopping 6.8%, reflecting the increasing costs for energy and refined fuels. PPI release showed producer prices for energy swelled a record 14.1%
last month versus October. Wholesale gasoline prices increased 34.8%. Prices of raw materials, known as crude goods, rose 8.7%

Non Gasoline sales at all retailers in November was a more modest increase of 0.6%.

But even that data point is suspect.

Why? The retailers themselves.

As the WSJ reported last week:

American consumers opened their wallets mostly on a
need-to-buy basis last month, or when big sales lured them to the mall,
bolstering concerns that the nation’s retailers will need persistent
discounting to move merchandise this holiday season.

While sales improved after two weak months, warnings from Target Inc. and others that business fell off sharply in the final week of November rattled many retail stocks . . .

The lackluster sales are another indicator that
consumers may be slowing their spending after a multiyear binge fueled
by cheap credit and a housing boom. Now, home prices are sliding in
most markets, and banks have tightened lending standards."

So the question presented to you, the home viewer, is simply this: Who are you more likely to believe — the retailers themselves, or the Commerce Department data?



Commerce Dept, NOVEMBER 2007

Producer Price Indexes – November 2007
DECEMBER 13, 2007

Retail Chains Record Mixed Sales End-of-Month Downturn Portends Holiday Worries
WSJ, December 7, 2007; Page B4

Retail Sales Suggest Economy May Be Stronger Than Expected
Wholesale Prices Surge on Energy
WSJ, December 13, 2007 9:14 a.m.

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What's been said:

Discussions found on the web:
  1. halbhh commented on Dec 13

    I wouldn’t buy an auto now. Like most people I want to wait for more fuel efficient models. So…..

    “Excluding gas and auto sectors, demand at other retailers last month increased by a robust 1.1%. ”

  2. halbhh commented on Dec 13

    Who I’m more likely to believe: My own sense of timing. Consumers aren’t that much less smart than you or I. They’ll tend to use timing to get sales, etc. It’s after the initial rush, and before the near Xmas rush. Ergo…. Let’s not suppose we know more than we do.

  3. joe commented on Dec 13

    also remember that this november had an extra week after Black Friday of holiday shopping. If you look at Target’s comps, this week added like 8 points to it’s “reported” year over year gains. the adjusted gain was 1%

  4. Sean commented on Dec 13

    < Who are you more likely to believe -- the retailers themselves, or the Commerce Department data? >

    Commerce Department data cover much more other areas and data points.

    Also, as someone else pointed out, there was an extra week in this year Thanks Giving.

  5. jw commented on Dec 13

    Inflation EX-inflation now rising… as the Fed embarks on a rate cutting campaign.

  6. John from Taos commented on Dec 13

    If the Commerce Dept. or any other Bush administration agency says anything at all, the opposite is true.


  7. ferd mertz commented on Dec 13

    china has announced a “tight” monetary policy beginning in 2008. the gulf cooperation council composed of around 10 middle eastern oil producers with dollar pegs meets soon to discuss possible modifications to their currency regimens. inflation in all these parts is perceived to be unacceptably high. WILL FOREIGN DOLLAR HOLDERS FORCE THE FED TO BEHAVE RESPONSIBLY?? let’s go f’in shopping while we await this verdict!

  8. BG commented on Dec 13

    more loan troubles (not just single family housing) in paradise…printing presses running full boar…crash the dollar…bring on the Amero!:

    TROUBLE IN TEXAS: Huge Multifamily Owner Nears Collapse
    Apartment Giant MBS Cos. Goes Deep in Arrears on More Than $600 Million in Loans

    MBS Cos., one of the largest multifamily property owners in the country, is delinquent, in default or in danger of becoming so, on more than $900 million in loans. For Michael B. Smuck (the MBS in the company name), that means he is in danger of seeing his apartment empire dissipate for the second time in his nearly 30-year real estate career.

    Based in the New Orleans area, MBS Cos. owns and operates more than 65 apartment complexes totaling about 17,000 units – all in Texas.

    Smuck’s debt problems have been the subject of whispered conversations among financial firms and analysts for the past month as the extent of the company’s financial problems slowly came to light. Those same financial analysts fear if MBS defaults, it could spell losses for many and affect property recovery operations, potentially for years to come. It will also generate a huge spike up in CMBS delinquencies, expected to be reported this week or next.

    One Lender, Many Losers
    PNC Financial Services Group originated almost all of the loans made to MBS Cos., about 90% of MBS’s total loan exposure. Most of those loans are no longer on PNC’s books because they were off-loaded into commercial mortgage backed securities (CMBS), which were then sold in the public markets and the risks spread to hundreds, if not thousands, of individual investors.

    Still, PNC has filed at least one breach-of-contract suit in Louisiana’s Eastern District federal court seeking $12.3 million in damages against Smuck and one his companies.

    As of last month, Smuck-affiliated companies had as many as 65 other loans totaling more than $900 million spread across 36 CMBS deals. Most of the loans were taken out since 2000, some as recently as this year. Nearly two-thirds of those were reported to be at least 30 or more days delinquent, according to analysis last month by Roger V. Lehman and Julia Tcherkassova, CMBS strategists for Merrill Lynch. The delinquencies and defaults were expected to spread to the remaining loans.

    To put that number in perspective, Fitch Ratings counted only $96.3 million in total delinquent multifamily loans across all CMBS deals in October. MBS Cos.’ delinquent CMBS loans in November were already more than six times that amount, and could go as high as 10 times that amount. Multifamily delinquencies in Texas already account for more than half of all CMBS multifamily delinquencies. That figure could rise to more than 90%…

  9. Pool Shark commented on Dec 13

    I hope this doesn’t sound like a stupid question, but…

    If the fed cut rates two days ago, and wholesale inflation increased the most in 34 years, why is the US dollar index up over half a point this morning?????

    /scratching head.

  10. zao commented on Dec 13

    Oh! it is just oil. Nothing Fed can do to control what the evil oil producers or Chinese demand does. they should cut rates to help the economy through this….whine whine more whining. This is what is coming from the perpetual rate cut advocates.

    The Fed can not hide from the fact that they caused the latest commodity price spike with their B-52 bombing style rate cuts in Sep. Check out the oil price. Popped up 35% since then. all commodities are similar. Not OPEC. This latest inflation spike is well and truly made in Washington DC, courtesy of B-52 Ben. Barry, you are one of the few highlighting this. Can we start worrying about what this is going to do in the longer term. I do not want to live through the 70s again. Please. This time around, there is no ambiguity. Fed is responsible for the inflation that we are witnessing right now.

  11. Bob A commented on Dec 13

    People who are in the worst financial shape are spending what should be a credit card payment on dinner out, alcohol, toys and huge vehicles that are twice as big as they need.

    They know they better live it up now before the credit cards are gone. But the credit cards just keep coming don’t they?

  12. Carlomagno commented on Dec 13

    As someone pointed out in a comment thread on Calculated Risk (quoting from the November retail sales release), the retail sales data is adjusted for differences in trading days and holidays (but not for price changes).

    I still think that the November retail data can not be seen as strong. And the first two weeks of December seem to have been abysmal. So unless the US consumer is waiting for the week before Xmas before opening his/her wallet, this is shaping-up to be a atrocious Xmas shopping season.

  13. Barry Ritholtz commented on Dec 13

    I spelled an Indian name wrong . . . I am, therefore, the white devil.

    Hard to argue with that logic!

  14. ajw commented on Dec 13

    pool shark – I’m the last person to hold myself out as a currency expert (though I did make a bit on it this year), but with the EUR taking the brunt of currency readjustment so far, and the European banks believed to be in as bad or worse shape than those in the US, it makes sense taht the dollar would fall a bit versus the euro, and by proxy versus the GBP.

    But seeing falling risk appetite globally AND the dollar falling versus the franc and the yen, well, that has me scratching my head too. Dunno.

  15. karen commented on Dec 13

    Pool Shark,

    Tomorrow is currency futures/options expiration… that could be having some effect on the dollar. At 76.66, the USD is tapping the 50 dma from the underside. It’s to be expected. Also, there is the possibility of a reverse head and shoulder’s here, which could bring the dollar to 78, and it would still be in a downtrend on a yearly chart… of course, fundamentals are LOUSEY, but the market doesn’t seem to care about fundamentals… yet.

  16. ajw commented on Dec 13

    ack – I meant rise. Too much sleet, not enough coffee. Apologies.

  17. michael schumacher commented on Dec 13

    Forgot who posted this thought but I totally subscribe to it:

    paraphrasing so bear with me:

    “Please keep shopping as I will be the one at the garage sales next year picking up what you fools bought at retail for half off”

    Or words to that effect…


  18. phil commented on Dec 13

    Last night I picked up a pizza and overheard a conversation the owner was having with a supplier here in Las Vegas. The supplier said food sales as the casinos were down as were the restaurants she supplies and went into a brief summary how the housing downturn is causing problems and consumers are cutting back their purchases.

    Let’s see: Higher prices because we import more goods on a % basis and the dollar dropping along with lower consumer demand equals what? It used to be called stagflation but since the Keynesian Theory doesn’t allow for it, it must not exist.

    Phil-Las Vegas

  19. dblwyo commented on Dec 13

    Pool Shark & commenters – take all the points of the replies. Makes sense. In addition a) there’s been a lot of talk about a s.t. “bottoming” of the $ in the last two weeks (aside from our boy Nouriel who don’t do short-term). And b)a lot of the differential was based on increasing interest rate differentials with the Fed cutting while ECB, were raising. Now they’re holding, Bnk Of England cutting, and major world economies slowing it does look like that differential will be reduced somewhat. Bear in mind rate differentials are only a partial explanation. Check out Econbrowswer from time-to-time.

  20. karen commented on Dec 13

    forgive me, pls. i meant LOUSY… i do have a dictionary!

    so while i’m correcting myself, anyone read Quint Tatro’s “Is this a bottom or a top?” at Minyanville?

    Honestly, the guy drives me nucking futs! His comment,

    “Well, everyone is convinced that because of all the problems we are facing the market must go down, all I am asking is, where would the market be if these problems weren’t here? Would we be at this level or would be higher?”

    My comment, it’s the problems in the credit market, UNBRIDLED, UNREGULATED, OFF BALANCE SHEET, SUBPRIME/FRAUDULENT CREDIT CREATION that got us to the new highs in the dow and spx in the first place!

  21. dblwyo commented on Dec 13

    Barry to your point the YoY% increase in gas station sales was 25%, clearly driven by the 34% PPI increases in large part.

    That will displace consumer spending on “real” stuff and slowing consumer demand.

    CalculatedRisk just put up his current MEW tables yesterday which are slowing but who’s outlook is much more negative. Given the combination of a fast disappearing Housing ATM (remember that before the crisis) and a big chunk of the consumer budget going to eating and driving to work….

  22. michael schumacher commented on Dec 13

    minyanville tries REALLY hard to paint themselves (not all of the contributors though) as middle of the road so that they do not take any one side of an issue. So as not to offend potential subs. They DID just license content to FBN so take that for what it’s worth. Some of the writers try so hard to present a middle of the road picture (like Harrisons piece today) that does’nt ever really say anything it ends up being a waste of reading time.

    too many people who call themselves financial journalists suffer from the “no se” syndrome…..

    Teaching kids about finance is good stuff however they are missing some tanglible things that are going on simply because they do not want to offend anyone.

  23. Ross commented on Dec 13

    AP ‘wholesale inflation skyrockets. Sales up’ Duh! Occam’s razor

  24. techy2468 commented on Dec 13

    i have a question about the stock market:

    i still fail to understand how some equities are trading at more than 30 times earnings, who is still willing to bet his money on the growth side??

    can it be the fund managers who want to keep the market alive till end of this year so that they can get their bonuses??
    If so, then how long can they keep things positive and why have people not taken their money out of funds yet??
    (i took mine like six months back out of mutual fund and parked it in money market)

    in other words do people still really beleive that next year economy is going to bounce back? and hence they are still buying stocks at this high prices?

  25. Estragon commented on Dec 13

    A few little quibbles/questions:

    1. Your first para reads “Retail sales increased by 1.2% over October 2006”. Should that be October 2007? (BR: Doh! I’ll fix above)

    2. Using PPI to explain a retail sales increase is a bit of a reach. Although there’s a directional relationship between PPI and CPI over time ( see graph ), PPI swings tend to be more extreme, and are variable with respect to the degree to which PPI changes are ultimately reflected in CPI.

    3. If the retailers themselves assert buyers weren’t spending until “big sales lured them to the mall”, doesn’t that suggest disinflationary pressure?

  26. John commented on Dec 13

    There were also some extra retail days this year because Thanksgiving fell so early.

  27. idocare commented on Dec 13

    I have said it before and will say it again. You must always have a second source of confirmation before relying on any of the so called published data.

    Last months New home sales was a perfect example. 770K sales last month. 728K sales this month translates with really bad math to a 1.6% sales increase. That one was easy to figure out. They compared two numbers with vastly different standard deviations!

    The Tell, right off is to find a second source. With new home sales, it is easy. Go to the SEC filings of the public home builders. There the data says sales are down 20% and cancellations are up to at least 40%.

    Then you have to decide. Who am I going to believe the most. Some guys playing fast and loose with their third grade understanding of statistics or some public company CFO, who will go to jail if he lies about sales. I think even the third graders can get this one right.

  28. JWC commented on Dec 13

    Kohls runs senior citizen discounts of 15% for everything you buy. They used to run that on a Wednesday, about once a month or so. Since the middle of November they have run that special Tuesday and Wednesday, every week. My husband and I now only shop there on “special” days. When he did his Christmas Shopping they also gave him a coupon for $20 ($10 per $50 spent), good the following week. I took his coupon when I did my Christmas shopping. Everything was already on sale, plus my 15% off, plus the $20. Plus they gave me another coupon, which I spent this week.

    The store was fairly busy, lots of white haired folks there. My question, how in the heck can they be making any money??? Assuming it is a given that the “original” price marked is a sham… 50% off sticker, plus 15% off, plus a coupon that is in effect another 10% if you come back… The math just does not work for me.

  29. wintersnowman commented on Dec 13

    Most retailers this year had november periods of the following: 4 weeks ending 12/1 (9 selling days after thanksgiving). Last year, and most other years, it was a different story: 4 weeks ending 11/25 (only two days after thanksgiving).

    Why did this happen? A quirk of the calendar. It was a 53 week reporting year this time around. Last time this happened for retailers was 2001. This calendar situation is not as built into the seasonal pattern for November. The Commerce Dept. adjusts for three things: holiday, trading day, and seasonality (not for prices). Because of the change in reporting calendar you have November as being stronger this year with the extra week that many retailers report. The seasonal adjustment tries to take care of this, but this year there is more of a risk that you will overestimate the adjusted data for November and underestimate the December data.

    (Here’s your second data point idocare) The ICSC, in their PR this month entitled “November Growth Overstates Strength” said that: “ICSC research estimated that the calendar mismatch boosted November sales growth by between 3/4 and 1 percentage point. As such, the underlying trend in November was between 2.5% and 2.75%. Moreover, the November boost will reverse in December and cause an understatement of the performance by a like amount.”

    Like many other holiday seasons.. it’s best to make a final judgment by looking at both November and December together.

  30. Pat Gorup commented on Dec 13

    Call me skeptical but I wouldn’t believe either the retailers or the Commerce Dept because they both have their own reasons for distorting the data.

  31. das Kapitalist commented on Dec 13

    Oh yes, it is a conspiracy! We should always believe the anecdotal observations of various retail corporations before we believe statistics from the U.S. Census Bureau, especially when we are intellectually committed to the idea that the economy is slowing down and have repeatedly prognosticated the same!


    BR: You have a profound misunderstanding what is being discussed.

    These are not anecdotal stories, these are the monthly retail sales that each firm releases, showing their sales figures, traffic, margins, etc.

    Dismissing these monthly reports out of hand reveals a thorough lack of understanding of the reporting obligations of retailers to their shareholders, as well as the rules of Sarbanes-Oxley.

    Get a clue . . .

  32. Peter commented on Dec 13

    das K,

    Who said anything about a conspiracy, except the asshats and trolls?

  33. das Kapitalist commented on Dec 13

    BR, you said

    You have a profound misunderstanding what is being discussed.

    These are not anecdotal stories, these are the monthly retail sales that each firm releases, showing their sales figures, traffic, margins, etc.

    Unless you have a statistically significant, properly weighted sample, it is just anecdotal. A summary of the reporting of 29 of the largest retailers showed that they beat estimates on average. The list is posted here. ShopperTrak estimated November sales to be up 6.5% from a year ago. But neither of those two sources are as good as the U.S. Census Bureau, which has more relevant statistical data to reach their conclusions from.

    Anytime you start claiming the government is misleading the people and site to anecdotal evidence to prove it, that smacks of conspiracy theory. Why not just admit that the sales were good?

  34. Winston Munn commented on Dec 13

    This might help the conundrum. As quoted on Nouriel Roubini’s blog:

    “As Goldman Sachs put it today in a note to clients:

    Same-store sales data for major retailers improved substantially in November. Our Goldman Sachs Retail Index jumped to 4.5% on a year-over-year basis, from 1.2% in October. From this vantage point, it looks like the indefatigable American consumer is spending freely as the holiday season gets underway.

    However, the improvement in monthly data contrasts with relatively tepid weekly reports and declining consumer confidence, and is mostly explained by reporting differences. Some retailers compared a four-week November that ended with the Thanksgiving week in 2006, but included the week after in 2007. The extra holiday shopping days in 2007 boosted sales at these retailers, but will involve a payback in the next release, which will now have fewer holiday shopping days than last year. We estimate this distortion accounted for roughly 2½ percentage points of the improvement in the GSRI…

    The corollary of better November data is a headwind for December retail sales reports. If the effect of over two percentage points is symmetric, then December same-store sales stand a good chance of coming in at or below zero.

    Indeed, according to the UBS/ICSC data that looks at a broader range of retailers than the major ones same store chain store sales fell in 3 out of the 4 weeks of November with the figure in the reporting week ending on December 1st being a negative 2%.”

    December sales hold poor prospects, it seems.

  35. David commented on Dec 13

    You are right, the likely source of sales gains is Inflation.

    Inflation is our friend!
    Indeed, the only way you can make money is when people fear they will lose their money, due to the decreasing value of the dollar, then it’s the opportunity for Wall Street’s to gain.
    In Deflation times, people are more conservative with their money and will not take chances.
    Uncle Ben and Friend’s know this and will never moves up rates again, because this makes borrowing more expensive and hurt homes sales, therefore they want inflation.

    Shakespeare had it right, in the The Merchant of Venice, “All that glisters is not gold,”
    A win-win strategy.

  36. ebreen commented on Dec 14

    The premise of this whole thread is that index measures are themselves inflation. They are not. Inflation is something that happens to the money supply and may or may not be reflected in the index measure. The index measure also reflects normal and supply price change information. That is not inflation. High oil price is actually deflationary. It may be true that gas and oil price distorts the retail index but it is wrong to say that it is inflation. Its really high gas and oil price that is presently not materially driven by inflation. That is part of the answer of why gold was down, the dollar strengthened and the 10 year bond only moved minimally in the face of all this supposed inflation.

  37. The Big Picture commented on Dec 17

    Retail Sales Softer (Ignore the Surveys)

    If you want to know:- What people think, ask them questions. – What people are doing, look at the data. – What they are going to do, watch their behavior. That simple lesson gets lost in the various annual Holiday Shopping surveys. Each year, some grou…

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