Real Retail Sales Growth Fall to 2003 Levels

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

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

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What's been said:

Discussions found on the web:
  1. Grodge commented on Feb 14

    “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!

  2. cinefoz commented on Feb 14

    Please explain the several year lag effect of lowered retail sales, as compared to rising stock markets. The YoY chart shows declining sales since 2004. As I recall, the stock market rose considerably during that period. Are you saying there is a 4 year lag between a decreasing rate of retail sales and a decreasing stock market? Or is there actually little correlation between the two?


    BR: Don’t misread the charts — the rate of gains is declining — Real sales were decelerating, growing more slowly. Until this month, when they contracted.

  3. commented on Feb 14

    Opening Bell: 2.14.08

    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…

  4. Douglas Watts commented on Feb 14

    The question for me is where are people getting all the extra money to buy lots of additional stuff even as they are shelling out much more of their money for food and fuel? The extra $$$ for food and fuel has to come out of $$$ that would have been spent on other stuff, on reducing household debt, or put into savings. I know in our family, the cost of gasoline and heating oil has dried up just about every cent we might have had to buy other stuff. We are going to restaurants once a month instead of once a week, and going to the library instead of buying books on Amazon. But hey, the seed companies are going to get some money this year !!! Everyone’s going to be growing their own food !!!

  5. cinefoz commented on Feb 14

    I guess the best conclusion that can be made from these charts is ‘Don’t Buy Retail’. I suspect sector funds that specialize in retail would look flat since 2004, while the rest of the market went gangbusters. Margins must really suck.

  6. Sammy20 commented on Feb 14

    Dennis Kneal is an idiot!!!!

    What value does he ever add…ugh, moron!

  7. dblwyo commented on Feb 14

    Marvelous dissection – and thank Haver for us as Real Sales won’t be out for a while. This was one of the three major stories since Mon that on the surface gave the market what it wanted – the others being Buffett’s bond offer and GM earnings.What Warren did was offer (?)70 cents on the $ for the good municipal bond which is the insurers only incomes and their lifeline, i.e. they go out of business. GM’s earnings had a $1.6B tax credit offsetting $1.5B of NA losses; adjusted instead of $.08 it was -$.58 ! Ouch.
    Yet some fairly sensible talking heads on CNBC (Saut, Biggs ?) were talking up a “bottom” here. My take is that the Street doesn’t buy into anything but a mild recession and a quick recovery. Yet if your analysis is right we’re just at the tip of the precipice. If you’d like a little more detail behind this plus the news stories try:
    Grading the Takehome:
    Naive Q’s(Real News):

  8. Justin T commented on Feb 14

    Couldn’t this bull-trap be the result of the big players orchestrating the market up because they just want/need another chance to pull more money out? I find the volume pitiful, and any half-way intelligent/dilligent investor should be ready for another leg down.

  9. njAndrew commented on Feb 14

    Don’t you love how they strip energy out of CPI but leave the gas station ‘energy’ component in the retail sales data? Only use it when it helps, drop it when it hurts.


  10. Cortex commented on Feb 14

    Just went through your Jack Jonsson videos. If you like him you might appreciate Martin TIngsek, with a similar sound and aura.

    Martin TIngsek is Swedish. The Swedish RIksbank raised the interest rate yesterday due to inflation worries. See how it all ties together? I don’t.

  11. Jason commented on Feb 14

    I think CNBC should let Dennis to host street signs and let Erin goes, we don’t need insights, we only need lip service!

  12. JustinTheSkeptic commented on Feb 14

    cnbc just had another guru on spewing numbers that sounded great for the future; problem is they were bogus! That is the problem with this whole process – anyone can minipulate/massage the numbers to conform to their thesis, which in turn holds up a false arguement until the truth reveils itself. I have never been more disillusioned than I have been this past year getting to know the U.S. stock market, and how it functions. There are fewer liars in prison.

  13. Winston Munn commented on Feb 14

    The Commerce Department uses “enhanced interpretation technique” so they can get the numbers to confess to damn near anything.

    Next month we will get “Enhanced Adjustment Techniques of MacroEconomics”, better known as the EAT ME revisions.

  14. Mark W commented on Feb 14

    Hopefull your not getting your information from, because, as you can see on the front page, the DOC is shutting it down due to budgetary constraints. Riiiight.

    No public data = No bad news. Yay! everything is great. When can I get my rebate check so I can pump it back into the stock market like the Administration and teh Fed want?

  15. bonghiteric commented on Feb 14

    Why would you watch CNBC? Other than a select few most of the anchor’s or correspondent’s financial knowledge base isn’t much deeper than an entry. Pick five blogs off the TBP blogroll and you’ll get more info and analysis than CNBC w/out the agita.

  16. E commented on Feb 14

    Barry, good points, but one thing you left out that I’d like to see is an estimate of the actual retail sales number for January, after taking into account all of the above.

    The point would be to see if it comes in above or below the consensus prediction of -.3.

    People keep asking why the market was up on a not so good retail sales number (when you look under the hood), and my first thought is that maybe the number, all things considered, was still better than expected.

    In other words, bad news was baked in the cake last week.

  17. spencer commented on Feb 14




    You are misreading the chart on real retail sales from Haver.

    If the year over change in real retail sales is zero that means that real retail sales are at the same level they were one year ago —not five years ago.

    just to keep it simple, assume real retail sales grew 4% each year for 4 years and 0%
    for one year — roughly what the chart shows — you get.

    year level

    The current level would be 12% above the level 5 years ago.

    Sales would not be back to the same level they were five years ago.

  18. Vermont Trader.. commented on Feb 14

    “Real Retail Sales fell to levels not seen in 5 years”

    This is not accurate. Your chart shows year over year % changes, NOT actual levels.

    You should say that real retail sales had the biggest year over year decline in five years.

    Also, I think that whenever you post real data you should post the deflator series or the nominal series for reference.

    After all, the stock market is priced in real terms, not nominal ones.

  19. Stuart commented on Feb 14

    Great dissection of the retail figures for sure, but alas to no avail to analysts. The headline print did its job and pumped up the DOW. Three clear trends apparent. Keep the stock markets buoyed, support the dollar above 75 on the USD index and pump up econ stats in the MSM.

  20. Steve commented on Feb 14

    I have a problem with the statement “Real Retail Sales Fall to 2003 Levels”. The “Haver Analytics” chart shows real (inflation adjusted) year over year growth which has been between 2 and 4% for the last four years.

    The drop is in year over year sales so sales today are still higher even adjusted for inflation than in 2003 (roughly 12%). They just have not grown over the last year.

    So the title should be: “Real Retail Sales **GAINS** Falls to 2003 Levels” or more informatively “Real Retail Sales Drop slightly from last year”

  21. kk commented on Feb 14

    Nice chart. I guess that’s why some retail stocks are selling at cheap valuations.

  22. Steve commented on Feb 14

    Dang, I really need to write faster (or not take phone calls while responding). Hat tip to spencer and Vermont Trader for beating me to it.

  23. cinefoz commented on Feb 14


    great job. I goofed in my analysis. The graphs show retail growing at a decreasing rate. This is not an envious position, but also not the end of the world.

    I guess the huge amounts being pulled out of housing via refinancing and being put back into the economy don’t show up in these graphs. Otherwise, it would seem the graphs would be increasing more quickly and decreasing more rapidly as time passed? Maybe some aspects of the housing crisis are overstated a tad?

  24. Steve commented on Feb 14

    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 year

    That’s not what the chart shows. That chart shows YoY growth rates, not the level of real retail sales.

  25. Pat G. commented on Feb 14

    “And that’s using CPI as the inflation adjustment factor.”

    Well, if that is the case using the CPI number then we’re in for a world of hurt.

  26. PFT commented on Feb 14

    Funny how when they report inflation, they emphasize core inflation, but when they talk about retail sales, there is nary a mention of core sales, and it is first reported unadjusted for inflation.

  27. The Big Picture commented on Feb 16

    Pay More, Get Less

    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…

  28. Dean commented on Feb 16

    The one assessment I haven’t seen anywhere is when the consumer might decide he needs to quit spending more than he makes (ref. a negative spending rate in the U.S. exists) and that might be the reason behind reduced consumer confidence/spending; maybe the consumer is finally getting smart. Reduced spending is all being blamed on inflation and that all we need do is to keep prices down to get the consumer back in the game. The last bucket for over spending, home equity, is disappearing and intelligence might be setting in. God forbid! The consumer might be starting to look at their own situation and not just the investors who are crying for them to spend, spend, spend.

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