Retail Sales Data: A Closer Look

| About: VanEck Vectors (RTH)

I must admit to being baffled by yesterdays' Retail Sales Data. I am as guilty as anyone else of having selective perception; Like most people, when something doesn't jibe with my world view, I suffer through a bit of cognitive dissonance.

My saving grace is that I at least recognize these biases, which gives me a fighting chance to see reality without all these filters. That's why I am so keen on looking past the headline data and taking apart the details beneath.

Even acknowledging these inherent biases won't prevent me from scratching my head over the direct conflicts between what we heard from various participants over the past month, and the Retail Sales Data for November.

As an exercise, let's review a half dozen questions that came up regarding where the recent retail data might be somewhat over-stated. (and to make it even mroe challenging, we won't even mention the nation's largest retailer, who accounts for nearly $1 out of $10 spent, who is having an absolute stinker of a quarter):

1)  Commerce Data disagrees with what we heard from the Retailers themselves.

-The past 4 weeks, Retail Same Store Sales data was soft;
-Mall traffic was "uninspiring"
-Durable goods numbers were weak, inventory has built;
-Both Lowes and Home Depot warned of disappointments, yet Commerce showed sales in Building Materials increased; (See seasonal adjusted

Retail data made me think of Richard Pryor's great line: "Who are you going to believe, me or your lying eyes?"

2) Price Increases:  "The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes." (emphasis added)

We have watched food prices creep up over the past year. A friend steers us to the website ApplianceAdvisor, which tracks, amongst many other items, price inflation in white goods sold. Given the increases in steel, aluminum, copper, plastic, etc., this should come as no surprise:

Price Increases
-Effective Jan 1, 2007, Electrolux will raise prices 3%-6% on all top mounts fridges, freezers. 

Electrolux also warned that they would likely jack up prices on laundry too.
 -Viking will raise prices 3% - 6% effective Jan 1.  Sub-Zero/Wolf raise prices Dec 15, rumored to be 4 - 7%
 -Sub-Zero/Wolf raise prices Dec 15, said to be actually 7 - 10%
 U-Line price increase 4% (depending upon model, effective Jan 31, 2007.

ApplianceAdvisor's Price Increase Report shows significant price increases over the past 3 years, and 2006 is not expected to be much different.(CPI data is next out Friday 12/15)

3) Tax Receipts: The Liscio report keeps detailed surveys of estimated State sales-tax receipts. Their data showed only 27% of the respondents in the Liscio survey had sales taxes received matching or exceeding expectations; This was down from 55% in October.

"The weakening consumption trend is now established, and the majority of our tax contacts expressed real concern about a slowing in sales-tax collections. It now appears clear that consumers are not spending the billions of dollars they have saved on gas in recent months. . ."
-Liscio Report

For the 3 months ending October, average monthly retail change (ex autos) was a minus 0.5%, consistent with Liscio's sales tax survey; During that period, gas prices were declining; They have since begun to creep upwards.

4) Gotta love those seasonal adjustment. What happens when we look at the actual (rather than massaged) data?

As Expected:

-Autos dropped from $64,968M to $63,710M;
-Electronics exploded from $7,972M to $10,387M;
-Building Materials went down $29,961M to $28,814M


-Furniture increased nearly 10% from $9,925M to $10,947M;
-Clothing and apparel increased from $17,504M - $19,955M;

Bottom line: Price cutting is what has led to some sectors doing well; Inflation may be present in other sectors.

5) Declining Margins:  There was some genuine strength in the data, with electronics up 4.6%. But as Best Buy showed, heavy holiday discounting was not without a cost, according to the most recent Fed Beige Book“Retailers indicated that they have implemented price reductions for some lines of merchandise, especially consumer electronics and home appliances, but that prices for most other types of goods have been kept near plan.” 

6) Commerce Department Sample Alteration: According to yesterday's Retail Data release, "a new sample was introduced effective with the restated October 2006 advance estimates that were released on November 30, 2006. This release, and all subsequent retail estimates, will be based on this new sample. For more information please visit:

So we learn that the Commerce Department actually rejiggered the methodology as to how they calculate Retail Sales figures, starting with October's revisions and November's initial report.


Conclusion:  Yesterday's data was inconsistent with prior retail data, mall traffic, and State tax receipts. Some sectors (Durable Goods, Building Materials, Clothing)  have seen price increases; other sectors -- most notably autos and electronics -- have generated sales increases through massive discounting.

Lastly,  an altered retail sales measuring methodology may also have played a part in the surprise +1.0%.

We agree with other economists who have concluded that the November jump in sales may have been influenced by "special factors."  Rather than explain the sudden surge in consumer spending despite prior evidence to the contrary as the resumption of a consumer spending spree, we see it as increasingly likely that sales will be revised downwards next month.



November 2006
Department of Commerce, WEDNESDAY, DECEMBER 13, 2006

Int. Brand Sales Soar in November
AIADA , Dec 3, 12:19 PM 2006

Beige Book
Federal Reserve Districts Third District--Philadelphia, November 29, 2006

Weekly U.S. Retail Gasoline Prices, Regular Grade
Dollars per gallon, including all taxes