When A Rise In Retail Sales Is Not Good

Includes: DIA, SPY
by: Thomas Blankenhorn

Economic data should be easy to understand to enable all interested parties to provide a sense of the state of the economy. This becomes even more essential to government leaders for the purpose of economic policy making, for business owners to plan for future changes, for investors to guide them in their investment strategy, and for everyone in general to help determine their monetary involvement in the economy.

Sadly, however, government does not usually provide data for easy consumption. Sometimes what is claimed is under measurement, such as unemployment data, is a far stretch from the truth. Other times, government likes to apply seasonal adjustments to data and puts this out as the headline number and it then becomes an arduous task to locate the non-adjusted data, and oftentimes, the hassle, either perceived without experience or known from past efforts, precludes expending the energy. It is surprising that the actual worked-up data is NOT the primary data presented but the altered data is. And so if one really wants to get an idea of what is going on, one would have to research on his/her own or rely on a third-party to reduce the data to a form that is easily digestible. But, the mainstream media, especially tainted financial media companies, cannot be relied on to give the straight facts as they have a vested interest of eliciting financial market participation.

It is my opinion that government wastes its time making their seasonal adjustments to data as it confounds the data and moreover, the methodology for the adjustments is mysterious and so without knowing how the adjustments were conducted, it becomes a matter of trusting that the government did it in a sensible way. But is this the way our economic data must be packaged, in such nebulous fashion?

For monthly sales figures, the Census Bureau provides the up-to-date monthly figures only in terms of adjusted data. This becomes problematic. Of course, one could wait around a month and then they will have an excel spreadsheet available for the prior month with and without the incomprehensible methodology of the seasonal adjustments.

Without going into a laborious task of a numerical demonstration, I will discuss what is ultimately important in elucidating monthly sales data.

1. Compare nominal monthly sales figure with the monthly sales figure a year prior.

2. Compare the monthly sales figure with the monthly sales figure of a year prior.

For comparing the year over year data, no seasonal adjustment should have to be made since the comparison is of the same "season".

For month over month comparisons, the months obvious are different, and as such, there is the possibility of a seasonal variation. Of course one could rely on whatever the Census Bureau provides as THEIR seasonally adjusted data and simply live with that, OR, one could make sense of the matter and see, for example, the trend of the month-on-month figures for the past ten years, thus making the seasonal adjustments by your well-compensated government employees moot. It would be nice if they could just provide this extra information for those who do not want to be subjected to hidden alterations.

Upon looking at the Census Bureau's monthly total sales data, one would have to garner that the seasonal adjustments are not multiplied but divided to convert from the raw data to the seasonally adjusted data. This is illogical from the standpoint of what comes first, the raw data or the seasonally adjusted data. This is just one such example of how government makes the process of going through their ridiculous data format a painstaking process.

So far, this talk simply leads us up to obtaining the data with which to work with in a form that makes sense. In honing on the topic of when a rise in retail sales is not good, one would have to have only a minimal understanding of making fair comparisons, and this is merely based in rudimentary math and with identifying those variables having relevance. Now this goes to the early introduction where the government and media are not willing to contrast the economic data into a form that makes for a suitable understanding. Just like one is compelled to make the necessary standardization of the government provided GDP growth figure as in the article, "The Negative 10% GDP Growth Unmasked", the same would apply for the monthly retail figures.

So what other data is relevant in properly putting the government provided monthly sales data into perspective? This is something that should come automatically to you if the data really is important to you but of course I will submit the obvious components:

1. Inflation rate

2. Population rate

3. Government deficit spending

Now the Census Bureau claims that for the month of November 2012, retail sales rose 0.3% month over month and rose 3.7% year over year. Sounds good? Well, maybe to those who want to take in the Kool-Aid in thinking we are actually in an economic recovery, they may accept these numbers on faith and spout out to the world that everything is rosy in the United States. But then some of us say, "Wait a minute, aren't we having money poured into the economy? Don't we have inflation? And, don't we have a population that increases?"

So if our government is throwing out money on top of prior years of doing the same, shouldn't this have an impact on the retails sales? Suppose government didn't throw out any money at all, in other words kept a balanced budget? With less money sloshing around, of course retails sales would be lower and it makes sense that it would be proportionately affected.

I shall concentrate on just the year over year figure herein. The month-to-month figure could be entertained by pretty much taking the yearly standardizing factors and dividing them by 12.

It can hardly be debated that our population increases about 1%. The most up to date figure is 0.96%. This is population inflation, and should be treated just like for money. If the population doubles, one would expect, if there are no other confounding variables and there is a steady state, then the retails sales would also double. So, what we have thus far is NOT a retail sales increase of 3.7%, but one of 3.7% - 0.96%, which when rounded is 2.7%. Well there goes 27% of the suppose retail sales gains for this standardizing component alone!

Moving along, let's now consider the impact of the deficit spending. From the article referenced earlier it is cited that the deficit spending is about 7.2% of the GDP. This implies that there should be 7.2% more retail sales than if there was not this money injected into the economy. Just imagine how much our economy would be choking if we didn't have this deficit spending? Imagine millions of overpaid government employees not getting their big paychecks. Imagine those defense contractors not getting their lucrative contracts! Imagine all the "free money" not flowing to those on social programs (for the record I have no personal objection to sensible social welfare). So it should be clear that if the retail sales figures are presented by government or the media, skipping over this enormous factor would be akin to submitting to the public, propagandized data. In continuation, taking the monthly retails sales figure, standardized with population inflation and then further standardizing with the deficit spending percentage of the GDP, we have: 2.7% minus 7.2% which equals NEGATIVE 4.5%!

But wait, we are not done yet! How about that darn inflation rate? Now this is data that is rife with problems as it is impossible to come to one concrete number being so many extraneous factors are involved. It is popularly known that the government claimed inflation rate differs greatly from the actual inflation. So, let's consider both example and see if either one of them would soothe you. Again per the reference article, the government claimed implied inflation rate is 1.7% for the recent quarter but what we actually experience as indicated by what Shadow Stats website provides, it is closer to 5.8% inflation.

Continuation of standardizing the November 2012 year over year monthly retail sales figure:

  • Scenario 1, with government claimed inflation: Negative 4.5% minus 1.7% equals Negative 6.2%
  • Scenario2, with Shadow Stats claimed inflation: Negative 4.5% minus 5.8% equals Negative 10.3%

Note the similarity of the negative 10% retails sales figure with the standardized GDP growth rate of negative 10%. So, no matter what, go along with the government claimed rate of inflation or rely on a third party without a vested interest in trying to make the economy appear better than it really is, and the retail sales figure is still in the toilet, and thus that's where our economy is. We are really in a masked depression, covered up in high debt, along with government and media not putting the headline economic numbers into a standardized form thus preventing those who depend on such for making appropriate financial decisions.

Let this be a guide for which you use to standardize all economic data. Consider the factors that either increase or decrease the headline numbers and seek out those data to make the appropriate adjustments. Until which time reporters do more than copy what is presenting to them by government, it will have to be up to the individual or other trusted third party to get to the meat of the numbers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.