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Are Retail Sales Really That Strong?

Posted by: Michael Mandel on June 02

First, an apology for not blogging for a bit…I’ve been caught up in other things. But now I’m back in the saddle again…

I’ve been eyeing the retail sales numbers for a while now, and worrying about their accuracy. Here’s what puzzles me:


According to the BEA (based on Census data), real retail sales, except motor vehicles, was actually up in the first quarter. This is one important reason why real GDP has continued to rise, and why many economists are saying we are not in a recession.

The question is: Does this behavior of real retail trade make sense?

Here’s what I saw when I looked beneath the numbers a bit. This is the reported growth rate of sales in the first quarter, in real terms, for some key sectors of retail trade.

First quarter 2008
Growth rate of real retail sales
at annual rate
Electronics and Appliance stores 13.3%
Food and beverage stores 0.1%
Clothing and accessories stores 4.2%
General merchandise stores 4.7%
Health and personal care stores 5.0%
Gasoline stations 3.7%
Sporting goods stores 2.0%
Books and periodical stores 3.3%

First, a caveat. This data is below the level which the BEA considers publishable, so any particular number may not stand up.

But taken together, they present an odd picture. How could it be that real gasoline sales are up in the first quarter, considering the soaring price? That would mean more gas was being pumped.

How could it be that real clothing sales are up in the first quarter? That would mean more dresses, shoes, and jewelry were being taken off the rack and leaving the stores.

And, especially, how could it be that real book sales are up? Taken literally, that would mean more books and periodicals are being sold, which would be wonderful if it was true.

Now, there are two possibilities. Either the seasonal adjustment factors are weird, which would mean that we will give back part of the strength in the second quarter. Or something has changed about the economy which is throwing off the retail sales data collection.

More tomorrow.

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Reader Comments


June 2, 2008 08:59 PM

Inelastic demand + supply shifts = increase in revenue despite small decreases in quantities?


June 3, 2008 01:16 AM

"Real" sales are reported nominal sales, divided by some inflation estimate, which is to say "fudge factor". Are hedonics possibly in the picture? Computer etc. sales booked at "improved utility" values?

Aside from that, I read somebody's claim that at least in cases reported nominal sales may be sticker price, with certain promotions or discounts not deducted. I don't know how much veracity there is to that.

Edward Schrems

June 3, 2008 09:31 AM

I believe there is an easy explanation for at least some of the anomalies you point out.

Real retail sales are actual sales deflated by the CPI. If the rate of price increase in a particular commodity (gasoline sales) exceeds the CPI by more than the rate of decline in physical sales, the result will be seen as an increase in real sales of gasoline.

Sean Hackbarth

June 3, 2008 03:31 PM

The book sales don't surprise me. I worked in one during the last economic downturn. The store manager actually increased inventory because he knew when times got tough people wanted more value from their entertainment dollar. The multiple hours reading a book is more than two hours in a movie theater. I see it as a cocooning effect.

Also, 2007 sales were down which might have made the comparison with 2008 look better.

Joe Cushing

June 4, 2008 03:49 AM

Woo hoo. A new blog. I haven't started reading yet. They should put an email notifier on this thing.

Joe Cushing

June 4, 2008 03:59 AM

The answer here is a simple one. Inflation is under-reported. We can't possibly have such a sustained devaluation of the dollar and rising commodity prices without inflation. Dow chemical announced an unprecedented, up to 20%, price increase on everything they sell without a 90 day warning. Other companies are doing the same. It's only going to get worse from here, or better if you have fixed interest debt. It's not just goods either. In November or December I got an unexpected pay raise. I don't think my company was trying to be generous. This is less than a year after the last unexpected pay raise.

Keith G

June 4, 2008 04:40 AM

Could the housing component of CPI be the 'fly in the ointment'? The equivalent rental income factor may not work well in times of large swings in housing values.

Mike Mandel

June 4, 2008 07:56 AM

Pushmedia: Supposedly these numbers are picking up real quantities, rather than revenues.

Cm: Hedonics is mostly out. Weird changes could be an explanation for electronics stores, but not for gasoline or clothing.

Brandon W

June 4, 2008 10:21 AM

As Edward points out, this may be a factor of erroneous inflation adjustment. As I would argue, the practical inflation rate is much higher than is reported by the government statisticians. For example, using the statistical methods used up until 1992, the current inflation rate is about 7.2%. How do real retail numbers hold up with that rate of inflation? If we use the methodology for consumer inflation that was used up until about 1981, the rate is 11.8%. How do those retail numbers look then?

Mike Mandel

June 4, 2008 12:57 PM


I'm not sure you are right. Housing prices are plunging. So if we shifted back to the pre-1983 methodology (which was based on home prices rather than rental equivalence), the current inflation rate would actually be lower.

Brandon W

June 5, 2008 01:37 PM

"We know from centuries of evidence in countless economies, from ancient Rome to today's Zimbabwe, that running the printing press to pay off today's bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid....I have said many, many times that inflation is a sinister beast that, if uncaged, devours savings, erodes consumers' purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currency."
- Richard Fisher, head Dallas Federal Reserve Bank, May 28, 2008.

....As they continue to run the printing presses.

He also discussed the nation's massive, long-term unfunded Social Security and Medicare liabilities, putting the amount at roughly $99 trillion. Ouch.

Brandon W

June 6, 2008 11:44 AM

"Net of gimmicked methodologies that have reduced CPI inflation reporting and inflated GDP reporting, the U.S. economy has been in a recession since late-2006, entering the second down-leg of a multiple-dip economic contraction, where the first downleg was the recession of 2001 that really began back in late-1999. Annual CPI inflation currently is running around 11.6%, again, facing further upside pressures."
- John Williams, economist, Apr 8, 2008

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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