May retail sales...

Posted by: Michael Mandel on June 12

…are supposedly up 1%,with gains in virtually every category.

You will forgive me a snort of disbelief. Something is simply not right here. Let me review the situation. The housing market is in free fall; household wealth is down; real wages are down; unemployment is up; gasoline prices are sky-high; food prices are high; and consumer confidence is shot.

And now you want me to believe that retail sales are all fine and dandy, and Americans don’t have any trouble spending on clothing, sporting goods, electronics, and basically everything else.

I’m sorry—if it looks like a cow, sounds like a cow, and smells like a cow, it’s a cow, even if it comes with a notarized affadavit claiming to be a Porsche.

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Reader Comments

Brandon W

June 12, 2008 02:10 PM

But if the inflation rate is actually running at 11.8%, well... then what? Would the resulting recalculated retail number make more sense?

With the current and coming inflation rates, $100K may only buy a cow in the near future. And not a very healthy one, at that.

Joe Cushing

June 12, 2008 05:06 PM

I'm starting to feel repetitive here. It's inflation. Also, people are taking on credit card debt to maintain their standard of living in the absence of HELOCs.

Patrick O'Connor

June 12, 2008 06:11 PM

The problem with this retail sales report is it will fan rhetoric for higher interest rates now that central banks around the world appear to be working together to put a lid on inflation. The potential for higher rates is not going to help the overall stock market. Moreover, the retail sales result wasn’t all that impressive when you consider the enormity of the tax-rebate checks.

“I’ve noted for weeks that with retail sales running at a pace of $385 billion per month, it takes an increase of just $3.85 billion to push retail sales up a percentage point. That’s a small sum in comparison to the $120 billion in tax rebate checks that the government has issued,” said Tony Crescenzi of Miller Tabak & Co, in an article in The Wall Street Journal.

When you ponder a retail sales increase of just 1% after the government pumped that much money into the system, you have to wonder if a lot of the stimulus was used to pay down debt, like gasoline credit.

Keep in mind that tomorrow’s CPI report could ugly. In other words, stocks could slide further tomorrow.

L A Ogren

June 12, 2008 07:38 PM

That's just what I was going to suggest -- dramatic inflation -- excessive retail imports, burdened by a weaker dollar, developing market inflation, and soaring transportation costs.

It is, however, "only" a $4 billion increase, which is "only" about 10% or less of tax rebate checks sent out thus far.

The 2.4% May (and 2.7% April) growth in retail building materials is incredible. More insulation? Solar panels? The appliance category growth could also represent a move toward improved efficiency.

Lord

June 12, 2008 09:17 PM

I wonder if this is freed up spending by all of those that have jettisoned their mortgages.

Jim D

June 12, 2008 11:03 PM

As others have said: if you mismeasure inflation (and we surely are), then these numbers will come in higher than they actually are.

And while we're at it, remember that if we're mismeasuring inflation, then we're also probably in negative GDP growth territory... and that we've probably been there for six months or more.

Mike Mandel

June 13, 2008 11:16 AM

The retail sales appear to be outpacing inflation, that's what I find weird. The seasonally adjusted change in commodities prices, according to today's CPI report, was 0.9%

I am wondering whether there is something askew with the sampling process.

Dominic

June 13, 2008 02:26 PM

Michael

What inflation rate the retail sales data is outpacing?? The "official" rate....and the fact that the gains are in every category...I can hear the Mooohh from the cow!!
The argument about the boost from the rebate checks makes a lot of sense to me.
Would be interesting to know what was the value of the rebate checks already out at the time of the retail sales data calculation.

KK

June 15, 2008 08:32 PM

It could be that so many retail establishments are going out of business flooding the market with deeply discounted goods. This makes it difficult for the consumer to pass by such good deals - I am receiving emails daily from big box stores advertising gimmicks to draw you in. It is definitely a buyers market all the way around in Indiana. I do believe that this retail spending is temporary - I am already seeing a large stall in June Retail Sales despite the deep discounts.

h jack

June 15, 2008 08:37 PM

Let's see here... we don't count auto sales as they are in a slump..... we do count food and gasoline even though they are too volatile for including in the CPI.....

Sales are up???.....ooops.... watch out for that cow pie....

Joe Cushing

June 17, 2008 10:18 AM

KK makes an interesting point. Discounting in a down market could be masking inflation. Remember, rising prices are not inflation, but are only a symptom of inflation. You can have the flue and control the fever. That doesn't mean the flue goes away when your temperature is brought down.

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

 

About

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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