Conspicuous Correlation: Retail Sales December 2012

 |  Includes: PMR, RETL, RTH, XRT
by: Sold At The Top

Today, the U.S. Census Bureau released its latest nominal read of retail sales. It shows an increase of 0.5% from November and an increase of 4.7% on a year-over-year basis on an aggregate of all items, including food, fuel, and healthcare services.

Nominal "discretionary" retail sales -- including home furnishings, home garden and building materials, consumer electronics, and department store sales -- also increased 0.25% from November, climbing 1.72% above the level seen in December 2011. Adjusting for inflation, "real" discretionary retail sales declined 0.04% over the same period.

On a "nominal" basis, there had appeared to be "rough correlation" between strong home value appreciation and strong retail spending preceding the housing bust, and an even stronger correlation when home values started to decline.

The following chart shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and 2000.

As you can see, there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust. As home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below, adjusted for inflation (CPI for retail sales and CPI "less shelter" for the S&P/Case-Shiller Composite), the "rough correlation" between the year-over-year change to the "discretionary" retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.