The U.S. Census Bureau released the Advance Monthly Retail Trade and Food Services Survey late last week and on the face of it it seems like good news. By that I mean good news that IS good, whereas "less bad" has often been taken as being good in recent times. Seasonally adjusted retail sales were up 1.3% from the previous month and 1.9% year-on-year. Of course this is a survey of retail sales, with a reported error margin of ±0.5%, not a tally of actual data. So how reliable is it?
At the risk of sounding like I wear a tin-foil hat, should we believe government surveys? I figured that the best way to satisfy myself that this survey gives a credible picture of main street was to compare the survey data with states sales tax receipts.
The first step in making the comparison was to convert the monthly survey data into quarterly data. The next chart plots total quarterly sales taxes and quarterly retails sales survey data. Note that I've included items such as motor fuel sales taxes, and taxes on alcohol and tobacco, in the total sales tax number.
There are three things of note in this chart: firstly the survey data and the sales tax data are well correlated (0.92) -- you can rely on the survey data; the sales tax data peaks in Q2 whereas the retail survey data peaks in Q4 -- r^2 = 0.96 with the offset is accounted for; and the previous recession had no impact on the survey or sales taxes. The last six weeks of the year are generally recognized as being the peak retail spending period. Since I'm not familiar with the requirements various states place on businesses I can only assume that most or many businesses do not have to submit sales taxes for the Thanksgiving/Christmas period until at least April 1 in the following year.
While seasonally adjusted retail sales were up 1.3% in November the unadjusted number showed no change. Year-on-year the adjusted number was up 1.9%, unadjusted the number was up 1.8%. The thing to remember though is that in November 08 all metrics were on the verge of collapsing. A better comparison is surely November 2007. Here we find that the November unadjusted number was down 8.5%.
Year-on-year retail sales comparisons, or any year-on-year comparison for that matter need to be assessed in the context of any underlying growth trajectory. In the next two charts I've extrapolated the quarterly and monthly retail sales survey data. Given the linearity of the trend in this data this is a reliable way of determining where we should have been had the sky not fallen in.
When we now compare the recent monthly retail sales survey data with November 2009 extrapolated data we find that sales are down 12%. It will take some extraordinary growth in retails sales to return to the path we had been on prior to the crash. This data, which is consistent with the fall in freight and trade activity, does not bode well for the economy if and when government intervention ceases. It also suggests that earnings for companies dependent on retail sales will disappoint and that the fiscal situation for the states will continue to worsen.
"V shapers", who tend to be economists with a belief in efficient markets, can look at the rise in the S&P 500 and convince themselves that a recovery is underway. Retail sales, freight data, trade data, the housing market, and many other real world, main street metrics suggest an L shaped trajectory.
Disclosure: No positions