More Retail Sales Hype

Most people usually have a good reason for doing what it is that they do.

Whenever I am asked why I blog or push back against headlines, my answer is simple: I’m too trusting. In a face-to-face situation, I have the foolish tendency of believing what people say to me. Throughout most of my professional career, when someone looks me in the eye and with a straight face says "Up is down, the sky is pink, check is in the mail," I tended to believe them. Bottom line is, I’m just not a skilled reader of people.

This gulliblity has caused problems for me over the years.

Hence, why I usually don’t talk to CEO/CFOs, and why I find conference calls to be waste of time. Unless a CEO is a total jerk on a conf call — think Sallie Mae (SLM) — the nuances tend to get lost on me.

Spending_vs_consumer_pollsSome time ago, I figured all this out. Rather than listen to what these people were saying, I would go to the data myself. This way, instead of relying on a (self-interested) person to tell me if something was good or bad, I would learn the unvarnished specifics.

Readers of the Big Picture have seen this in terms of true
inflation, GDP growth, Housing sales, job creation, and corporate
profits. Most recently, we have been pulling apart the Retail Sales
Data. All I can say is, don’t believe the hype.

The most recent example of this are Holiday Retail Sales data. If
you rely upon the Commerce department, then sales are going just swimmingly. However, looking at the actual sales data, you may reach a very different conclusion. 

The nearby chart is a perfect example of the cognitive dissonance that blindly following government data can cause. The WSJ reported today that:

"Data released Friday show why many economists have reservations about
the surveys. At 8:30 a.m. in Washington, the Commerce Department
reported that consumer spending rose in November at the fastest clip in
3½ years. Ninety minutes later, the Reuters/University of Michigan
survey reported that consumer sentiment in December had fallen to a
two-year low — and, excluding the aftermath of Hurricane Katrina, had
hit its lowest level in more than 15 years."   

When two reports are so inopposite to each other, the odds favort hat one is wrong. Rather than take either the Commerce report or the sentiment surveys at face value, why not take a closer look at the various retail sales data we can find to prove — or disprove — about these conflicting reports.

First, let’s note that the Bureau of Economic Analysis Personal consumption expenditures (PCE) increased $110.6 billion, or 1.1% last month. To put that into context, this was ~triple the October gain, and was the highest sales increase in three and half years. Given all that has been going on in the world of credit crunch, housing, food and energy prices, that seemed unlikely to me. 

Let’s see what the spending data shows:

Durable goods increased 0.329%
Nondurable goods soared 2.005%.
Service spending increased 0.839%

Personal Spending in ‘Chained Dollars’ (meaning, inflation adjusted dollars) was +0.6% in November.  Ex-food & energy it is 0.2%. 

So to put all this econo-statistical gobbledy-gook into plain old English, food and energy price increases accounted for a full two thirds (67%) of the November spending gains. So much for ya merry retail Christmas.

Does any of the other data support this conclusion, torn straight from the pages of the Commerce Department?

In fact, there is a quite a bit of data supporting the Commerce Department data:

• Real incomes are declining: BEA reported that "Real disposable
personal income  (DPI) — DPI adjusted to remove price changes —
decreased 0.3 percent in November, compared with a decrease of 0.2
percent in October."  Inflation adjusted after-tax income continues to fall.

• Consumers are being squeezed: How long can you sustain income increases of 0.4% and spending increases of 1.1%? Especially if your Real Income is declining.  

• Shopper Trak says retail sales declined in the seven days ended Dec. 15, the third straight weekly decline

• Target executives admitted that customer traffic — the total number of customers
walking into Target’s stores — had dropped.

Based upon these and other data points, I find it hard to believe that consumer spending rose in November at the fastest clip in
3½ years. Instead, it appears that price increases are accounting for the biggest percentage gains in sales. (Your mileage may vary).


Some of my trader buddies call all of the above the "Blah blah blah." To them, price is everything. For those you traders who believe that everything but the chart is noise, consider the chart of the S&P Retail Index:

With the S&P500 up 6.5% YTD, the Retail index is down 15.3%.



That’s not exactly the sort of chart one would expect to see — under performing by 20% — if Retail sales were all that buff. 


I am not telling anyone they need to believe as I do. But when I read mindless cheerleading, the flawed  interpretation of data, the spin, wingnuttery and general hackdom (insert your own links here), I am compelled to call the cretins and neer-do-wells on their shenanigans and bullshit.

I let the data do the talking. Cause in a face-to-face, I would have otherwise believed the liars . . .



Personal Income and Outlays, November 2007
BEA, December 21, 2007

Full release (and tables) PDF

Holiday Spending May Defy Gloom Of Consumer Polls
WSJ, December 24, 2007; Page A1
(free Google News Version)

How the Cooling Economy Is Stealing Target’s Christmas
NYT, December 24, 2007 

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What's been said:

Discussions found on the web:
  1. dblwyo commented on Dec 24

    Keep up the faith, brother. What you do and the way you do it is immensely valuable. To add a couple of points – you aren’t digging around in obscure places and putting obscure interpretations on the data. It’s all out there in somewhat plain sight and more and more available. Anybody who reads this blog can dload the data now and build their own if they want.
    This is a matter largely of reporting which reproduces the statements rather than interpeting them. If the WSJ would, for example, report YOY changes in real sales and consumption we could all start seeing things better. But there is hope – a year ago the YOY meme was in limited circulation now many charts in many places use it. If you look at the charts via the Journal for example things just leap out by inspection. Progress is being made. Just for the record I put up real retail vs real consumption last week as well as inflation and confirm everything you have to say independently.(More Reality Bites-Inflation !:,Reality Bites-Real Retail Sales:

    BtW – did you know that you’re a closet Buddhist ? One of their fundamental tenets, as early in their doctrine as the Ten C’s is to look and judge for yourself. They also insist on clear-headedness and right thinking :) !
    So keep on keeping on, please.

  2. adam commented on Dec 24

    Once again you got this one dead on except i don’t understand why people still look at the University of Michigan survey. Thats the biggest pos indicator. It just moves lock stock and barrel with retail gas numbers. Might as well just cut out the middle man and look at the EIA data.

  3. Ross commented on Dec 24

    The sky ain’t pink? You’re kidding me!!!

    ‘Spin’ has been around as long as we have been walking upright. Maybe longer. I cannot remember the authors name but somewhere in my dusty stack of books is one titled ‘Confusion de Confusiones’. It is a 16th century explaination of how markets work. One example cited by the aurthor was how rumours cause prices to alter. “a big grain convoy from Egypt was sunk in a storm!!!’ Not true but the domestic holders of large grain positions were happy.

    Gotta go shopping. With retail sales surging, I gotta get my share!

  4. Hal commented on Dec 24


  5. Radhes commented on Dec 24


    Thanks for the above write-up, very informative.

    Best to you and your family for the holidays and 2008 . keep up the good work.

  6. Radhes commented on Dec 24


    Thanks for the above write-up, very informative.

    Best to you and your family for the holidays and 2008 . keep up the good work.

  7. Max commented on Dec 24

    It’s not that you are a poor judge of people; You are a poor judge of sociopaths. So is everyone else.

  8. D H commented on Dec 24

    I have spent the weekend talking with family about how the huge GDP number does NOT reflect huge growth in our economy. Honestly, people looked at me as if I am a conspiracy theorist. I do not think the average person understands how inflation inflates data about economic transactions. Oh well. They’ve been warned.

    Also, Barry, I think it’s important to note that casual dining is hurting. Meal preparation is something households outsource best, and it seems to be slowing:

    Happy holidays to everyone!


  9. Advsy commented on Dec 24

    Agreed with Dblwyo, What you do is very valuable.

    My issue is that the general market seems to trade off of this false data. So, knowing how bad it is tends to just make it harder to trade successfully?

    My question is. When does reality actually start to matter in the markets? How do we know when to start ignoring these garbage and hyped numbers?

  10. BG commented on Dec 24

    Barry, I agree with nearly everything you point out in this post. It is also the main reason I come to this blog. I have come to the point over the last few years that you can not believe any thing any one says anymore! I guess at 50 it is a lot easier to spot these talking heads on CNBC trying to steer the public in one direction or the other. It also ticks me off when everyone knows what is going on except for the naive, gullible public who really don’t know. (That’s the reason they’re watching, right?) It’s a real confidence killer (after doing a fair amount of due diligence) that you find out you don’t know shit. I, no longer invest because I have no confidence in my ablility to determine what is real and what is a promulgated lie being pushed for Wall Street’s financial benefit. I also get a sense that WS has noticed a significant drop off in investment activity from the middle-class Baby Boomers who lost nearly everything in the STOCK MARKET CRASH in 2000. That’s why I think they have Cramer on CNBC indoctrinating a whole new generation to keep the financial manipulation (pick-pocketing) of the retail investor going. I also view the debt debacle that spread around the globe as a “gotcha” on a global scale. It appears to me that WS has just done to the international investors what it did to domestic investors in 2000. Gotcha!! The Con is now trying to con the con. Lastly, could this whole mortgage fiasco be pumped up by the financial media and the Fed just as a means to get the cost of doing business (cost of money) lower (and earnings higher)? Actually with the competition between New York and London, this latest debt bomb is kind of like a “bitch slap” from Goldman Sachs to London, isn’t it?

    P.S. It is good to see I am not the only conspiracy theorist around here. Thanks for your comments D.H.

  11. michael schumacher commented on Dec 24

    and right on cue (from last week’s prediction) the market gets pushed up a hundy on nothing more than low volume and jr. traders with fresh repo. money ($10 billion for a half day)

    As far as the market going up on bad news…it’s not a conspiracy at all. When the powers that be all have the same desired end result (getting equities inflated so the crap paper they hold is worth something at some point) it does’nt take a coordinated event to get this to occur. Given the size and scope of the repo.s (that just got made an infinite thing BTW) it’s not too terribly difficult to imagine how billions of dollars are used to do this.

    Seriously….why is the dow up a hundred points??? On a low volume holiday shortened no news day????

    The repo. process is guilty of this. This is how the Fed inflates equity prices and then claims it doesn’t affect the markets directly.

    MAke no mistake…there is nothing temporary about providing billions in cash EVERYDAY in exchange for you’re neighbors insolvent boat loan (that might be a stretch) however the FEd will not openly engage in what types of collateral it takes in other than some basic boiler-plate “high quality assets” which IMO if they were so “high-quality” then why are they being exchanged for cash??


  12. m3 commented on Dec 24

    another ritholtz classic.

    i have nothing to add.


  13. D. commented on Dec 24

    As the odd woman out in many meetings, I am always amazed by how gullible men can be. There’s something about men not believing that someone would dare lie to their face!

    BTW, research does show that women are better at reading faces. There’s nothing wrong with talking with CEOs as long as you bring a woman along!

  14. Stuart commented on Dec 24

    And that is precisely the reason why I, and so many others consistently read you blog (comments too). Very, very well said. Merry Xmas to you and yours.

  15. Norman commented on Dec 24

    One sure fire indication of a problem is when you ask about something that you are concerned with and the answer comes back, “Don’t worry about that.”. Start worrying no matter the confidence portrayed.

  16. michael schumacher commented on Dec 24

    BTW Merril was really busy selling watches again in the dark of night. That GE is involved is just so perfect in our financially engineered (crap) economy. Also seems like Merril’s PR people went to school at the same place the Fed PR people did…..the school of announcing PR just the markets opening bell (i.e. manipulation’s full effect).. Neat litle trick that was eh?

    Someone, anyone tell me how selling out parts of the business to ANYONE with money is a good thing????

    That is a rhetorical question BTW..


  17. wittgenstein commented on Dec 24

    I do not believe the retail hype, either. I am a small retailer in the home furnishings industry. People in the midwest in our business have had a shockingly slow December- traffic as sparse as any December I can remember in 30 years. I can believe there was a push over Thanksgiving weekend, and maybe a late surge right before Christmas – but December in general has been terrible.

  18. D H commented on Dec 24

    Usually, when a company’s stock is diluted by new shares, the price must be reduced to reflect the growing pie. However, if a sovereign fund dilutes you (big time: debt with high yield that later becomes shares), seems like bagholders move in to buy at elevated prices. (And, let’s not forget that these banks still need to write off more toxic debt and hoard capital to re-establish ratios — which will in turn hurt their ability to lend and generate growing revenue in the mid-term.)

    We have an incredible system. It borders on mysticism.

  19. will rahal commented on Dec 24

    I have posted some interesting charts illustrating the ratio of Consumption of Non-Durables relative to Durable Goods and how it behaves into mid-recession. Not surprisingly, this ratio rises during during slow economic activity.
    The current level is associated with recessions in the past.
    No doubt the consumer has the propensity to spend, but now it may not have the ability
    to do so.
    See “Consumption: Propensity vs Ability”

  20. zero529 commented on Dec 24

    Barry, you are a class act. Thank you, and thank you to the folks who add their insights and comments on the blog.

    I finally (at age 36) feel like my investment sense is maturing and much of the credit goes to the BP gang.

    As an aside, times are tight in my household this year and I’m using gift cards from my siblings to buy presents for my wife, mom, etc. I wonder how those transactions get counted in sales volume (do the dollars get counted twice?), and I wonder how many other shoppers out there are doing similar things. Ha, imagine if the double-counting made up 5-10% of sales figures.

  21. michael schumacher commented on Dec 24

    “Most people usually have a good reason for doing what it is that they do. ”

    Mervyn’s ( department store-chain a step above Target) has lengthened it’s operating hours over the weekend to be open from 5am – 2am (the next morning) for the entire weekend….21 hours a day.

    I take it that they are not doing it because they feel the need to be open to help all those last minute shoppers….LOL


  22. Winston Munn commented on Dec 24

    You mean….shudder….it’s NOT all good?

    On a serious note, I add my thanks for all the fine work you do and terrific information and insights.

    Happy Holiday Season.


  23. Eric Davis commented on Dec 24


    Next your going to tell me there is no santa clause, and it’s just an excuse to sell me a bunch of useless crap!!!

    I’m not even going to bother with a rant about media and corporate bullshit.

  24. Josh commented on Dec 24

    Well done analysis Barry.

    The only time I read the media summary is if it gives interesting data, like “housing starts are the lowest in 16 years since the 1991 recession.”

    Otherwise, its someone telling me what to think.

  25. halbhh commented on Dec 24

    Hey, we should all check our mindset daily or weekly. But look at BR here:

    “Real incomes are declining: BEA reported that “Real disposable personal income (DPI) — DPI adjusted to remove price changes — decreased 0.3 percent in November, compared with a decrease of 0.2 percent in October.” Inflation adjusted after-tax income continues to fall.”

    OK….we know for sure that inflation ticked up lately, so that accounts mostly for the real income move, right? Next….

    We know in nominal terms wages were up a lot over the last 2 years…..

    So…..basically wages are up nicely in the last 2 years, but are lately nudged a bit back by inflation….

    That’s just numbers, no hype….

    So….why the Big Conclusion???

    In reality no obvious conclusions are available yet.

  26. Chief Tomahawk commented on Dec 24


    No one reads & hypes more headlines then senor Kudlow…

    It’s a fool proof method: He asks very long lead-in questions and then talks over those responses he doesn’t like.

    BUT, he does payout dinners to guys like Gary Shilling… nevertheless digs at them with black & white leadin clip from Wizard of Oz, housing in freefall though…

  27. michael schumacher commented on Dec 24

    Money Quote of the day:

    “The news on Merrill this morning is positive,” said Peter Sorrentino, who helps manage $12 billion at Huntington Asset Management in Cincinnati. “It bodes well for the market that there’s going to be consolidation and streamlining taking place among the financials.”

    So selling out stakes to the highest bidder because we don’t have enough cash is called consolidation??

    How about Desperation…sounds like it’s the later more than the former….


    Have a great xmas all…


  28. halbhh commented on Dec 24

    Let me add, it’s exactly because of the Quality of BR’s blog that it’s worth visiting here, over dozens of worthy choices…. That it’s worth responding too at all says a lot.

    Great work in general BR!

  29. Rob commented on Dec 24

    I agree partially, however, check out for insight as to why hedge funds are going to do well…

  30. dblwyo commented on Dec 24

    First things first – Happy Holidays to Barry the Bodhisattva and his readers & commenters.

    Aside from our gratitude there’s two more lessons here:
    1. This likely ain’t a conspiracy so much as it is reporters w/o time, training or tools to analyze (reporting, interpreting and analysis are different). Besides this’d require too many people to keep to juicy a secret.
    2. With BtheB’s tools and your own you too can look ahead though there are severe timing questions. The current slowmotion slowdown in GDP and Consumption was visible this time last year(when homebuilders were up remember ? Not on conspiracies mind you but optimism, denial and self-interest). You can figure out what the currents are and when conditions are ripe for an avalanche. And don’t walk on bad ground.
    To my point….
    These are GDP assessments from a year ago. Using Barrylike tools. If I can anybody can :) !

  31. FT Woods commented on Dec 24

    Here’s some strange anecdotal evidence for you.

    I work just one block from the toy district. Christmas = toys. Parking rates usually spike just before Christmas peaking around $17-22/day, resettling after the holidays to $6-8 depending on the lot. Every lot is jammed requiring the cars be parked in stacks. It’s been this way for the last 10 years.

    This year? Parking rates are $6-8. The lots have ample spaces. I’m not seeing parents lugging big bags of toys back to their cars, any where.

    Now, the severe drop in shoppers could be the China toy import and recall scares. But it’s also a cash only district. So it also could be that people just don’t have the cash to shop.

  32. Eric Davis commented on Dec 24

    Buddhists, may consider everyone a closet buddhist….

  33. blue commented on Dec 24

    but the simple answer is… you’re both right. you were right to get out or retailers in front of this holiday season, see 20% drop. And now, once again Christmas isn’t cancelled… people extraSpend on their credit cards and use their combo nominal/real increase in wages to pay it in 2008. Online transaction increase due to high gas prices and parking lot rates fall. And now, with Christmas official ‘ON’, the retail sector stocks can rise, so the cheerleaders are right, too. They’re saying, NOWS THE TIME – BUY LOW, and you’re saying YOU WERE WRONG BEFORE. Those are two different arguments… If retailers make their money in Q4, then who cares what happens next month? As long as it’s all worked out by Christmas 08, bottom fish.

  34. Jay Weinstein commented on Dec 24

    BR– I found the most interesting part of your comments to be the section on not meeting CEO’s and CFO’s.

    I have been in the business for over 20 years, and have come to the exact same conclusion. Many people ask me if I meet with management and “kick the tires.” When I say no, and in fact that I have experienced a NEGATIVE correlation between face-to-face contact with management and investment returns, most look at me like I am crazy. But them’s the facts [for me at least.]

    I don’t think you are necessarily a bad judge of people—it is just harder to be dispassionate when you have a more personal relationship with someone. I do listen to conference calls, not necessarily to hear WHAT management is saying but more HOW they say it and how honestly they answer questions.

    And as you have figured out: it is not what people say, it is what they do. There are plenty of good honest management teams out there—-but many more that are lying manipulative dirtbags. Ain’t this a fun business?

    Regards to all!

  35. mark stotko commented on Dec 24

    Happiest of holidays!
    just found you this year…. just DIG what you do
    now I understand why you haven’t taken Mr. Kudlow out to the WOODSHED, but somebody NEEDS to, maybe that’s why Battapaglia is always on remote
    keep up the great work

  36. donna commented on Dec 24

    I believe in the UPS guy.

    UPS guy will show up with the Chriswanzika presents this afternoon and I don’t have to do any more shopping!

    Retail? What’s that?

  37. BG commented on Dec 24

    Boy….ain’t next year going to be a blast? Between the election and trying to figure if this is the greatest economy never sold or the biggest bunch of bs ever told……it’s going to be great!!

    Merry Christmas Barry!

    I say, Open the financial blinds and let the sun shine in!!

  38. justin commented on Dec 24

    Peace on earth good will towards the wall street crooks! Nowhere else can you get a 16% increase in bonuses, and have your shareholders bend over while you get to piss all over their backs. May they continue to be saintly stewards of our welfare. God bless financial molestation!

  39. wnsrfr commented on Dec 24

    Anectodal data point: the local Walmart, CVS and Walgreens stocking stuffer isles were all chock-full of everything you need here in North Shore Massachusetts (Boston). Usually when I go 1-2 days before x-mas I have to scrape around for what I need but not this year.

    So, either they over-bought M&M-filled candy canes or we the consumers are under-buying.

  40. sk commented on Dec 24

    Great post BR. You work and I part-time participate in a business that is just chock full of liars, thieves, crooks and robbers. My wife who has a very socially redeeming job, has twice or thrice said to me, when I repeat litanies like the one you’ve stated – “Don’t you feel dirty ?”

    I think my New Year’s resolution is going to be to shower twice a day – once in the morning and once after the markets close.

    Merry Christmas of course, BR.


  41. Ed Miller commented on Dec 24

    Thanks for another great post. I have the same problem with many people – too trusting.
    I look forward to your comments every day just because you do dig into the numbers.

  42. wunsacon commented on Dec 25

    Thank you, Barry, for your blogging.

  43. NoFate commented on Dec 25

    I know this is not a political blog, but I cannot wait for the Bush family to exit. Their spin and lies have seemed to permeate everything at this point. It worked for so long on politics, the environment, science and the war …now it appears they are trying to lie their way out of a recession. It is just sick.

    Thanks for doing what you do Barry. Blogs are about the only source of news I trust anymore. There is usually no agenda and anyone can respond and call Bull Shit.

    Have a great Christmas Barry!

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