Tuesday, May 13, 2008


The Depression Chronicles – 5: Consumer spending

As I mentioned in a recent post, the economic cheerleaders spare no effort to present a rosy scenario of the nation's economic future. Since the Department of Commerce releases the nation's economic statistics faster than I lose hair, there's plenty of material to work with.

The latest cause for cheer was the "Advance Monthly Sales for Retail Trade and Food Services" released this morning by the Census Bureau. It comes out monthly and these were the numbers for April.

This report is watched carefully by economists and investors. It's considered of great significance because two-thirds of the contribution to the statistical measure of the overall U.S. economy consists of nothing more than the total of money that consumers have spent, whether they actually have any or not.

The report found that retail sales had dropped by 0.2% since March. Well, whoo-hoo! Before you turn all incredulous let me explain that the reason for the good cheer was that the number had dropped less than economists had expected! That calls for a second whoo-hoo!

But sometimes you have to dig about for the really good news, and our economic brethren wasted no time. Chris Bryant of the Financial Times, in a story glowingly titled "US retail data show signs of resilience," leads in with—

Fewer car purchases put a dent in US retail sales last month, which fell 0.2 per cent, as consumers were hit by high fuel costs and a weak labour market.

Excluding autos, however, total sales increased, indicating signs of resilience in consumer spending, a government report showed on Tuesday.

So if you eliminate car sales, things went swimmingly, right?

To bolster that view, Bryant quotes from an expert—

“Given all of the negative news... the strength in this report is a startling reminder of the resilience of the US consumer,” Drew Matus, senior economist at Lehman Brothers, said.

My, oh my. Digging a little deeper Bryant finds that—

Car sales fell 2.8 per cent last month while overall petrol sales posted a surprise decrease, slipping 0.4 per cent.

Is it really possible that someone can get a degree in economics and be surprised that gasoline sales dropped?

But here's the good news—

Excluding petrol, retail sales fell 0.2 per cent, while excluding both petrol and cars retail sales rose 0.6 per cent.

Michael Feroli, US economist at JPMorgan Economics, said he was encouraged by the broad-based nature of these sales increases, which included gains in electronics, apparel, sporting goods and general merchandise.

In other words, if you drop out the figures for auto sales and gasoline, sales were actually on the increase! Now I'm beginning to get it.

So I decided to drop by the Commerce website and have a look at the actual report. Economic statistics can be a bit tricky, so I wanted to find out what was being measured—was it the number of units sold or the total dollars spent? The short answer turned out to be total dollars spent.1 And here's what I found floating above the charts—

Estimates adjusted for seasonal variation, holiday, and trading-day differences, but not for price changes

In other words, if consumers made exactly the same purchases in April that they made in March, we would expect "total consumer spending" to rise, since the price of just about everything has risen. Whoopee! We're saved! We don't have to buy more, we just have to pay more for it, and the economy will still be on the right track!

It appears that the "core CPI," a measure of inflation, hasn't been released yet for April. (Forgive me if I'm wrong. I don't follow these matters very closely.) However, the March figure was 0.6%—an exact match to the increase in consumer spending for April once we jigger out those depressing numbers in auto and gasoline sales.

See how easy it is to find hope in a doomed economy.

Of course the stock market responded immediately. One atop the other in Google News were these two headlines—

Stocks head to higher open after retail sales report
The Associated Press - 2 hours ago

Stocks decline after retail sales report, Bernanke speech
The Associated Press - 44 minutes ago

Mr. Bernanke should just shut up. He's ruining my day.

Related posts
The Depression Chronicles – 4: Insurance (5/10/08)



1The long answer turns out to be—

The advance estimates are based on a subsample of the Census Bureau's full retail and food services sample. A stratified random sampling method is used to select approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms. Responding firms account for approximately 65% of the MARTS dollar volume estimate.


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