November 15, 2006
ANOTHER CAVEAT FROM THE DATA TRENCHES
The consumers' capacity for spending come hell or high water is widely recognized and celebrated. But yesterday's retail sales report for October offers another excuse to pause and reconsider if more of the same is in store for 2007.
As the chart below illustrates, there's reason to wonder if Joe Sixpack's finally met his match and is now in the process of turning a new leaf that deemphasizes spending. For the second month running, retail sales slipped. Considering that August sales were flat, you have to go back to July to find a month when consumption overall advanced over the previous month.
And, no, stripping out the volatile motor vehicle sales doesn't alter the downward bias in retail sales.
Similarly, a closer look at October's retail sales doesn't offer much improvement over the big picture. Yes, on a 12-month basis, growth is still evident. But what have you done for us lately? At best, the answer is mixed as the red ink in the one-month column below reveals.
If consumer spending continues to slow, the stakes will rise in the forecast by some that the worst of the real estate correction is behind us. If that proves to be a premature notion, Joe will have to step up to the plate once more to keep the economy afloat. With the holiday-spending season upon us, there's a chance that a fresh surge of consumption may be coming. Even so, with real estate and consumption moderating, the economy can't afford much else to go wrong now.
Posted by jp at November 15, 2006 10:00 AM
The retail numbers I crunched are nominal and seasonally adjusted, as reported by the Census Bureau.
Posted by: Jim Picerno at November 15, 2006 9:17 PM
I ran the retail sales numbers ex-gasoline sales. The result: overall sales look better, but the trend is still less than encouraging. Consider that retail sales ex-gasoline sales rose by 1.7% this year from Jan through Oct. That's better than the 0.5% rise for the full retail sales (i.e., including gasoline) for the same 10 months.
On the other hand, sales ex-gasoline in this year's Jan-Oct period have slowed from the same 10-month stretch in 2005. For comparison, 2005's Jan-Oct retail sales ex-gasoline advanced 3.3%, or about twice as fast as this year's pace in the same period.
Posted by: Jim Picerno at November 15, 2006 9:14 PM
Are these nominal or inflation-adjusted stats?
Posted by: algernon at November 15, 2006 7:58 PM
It seems to me that declining gasoline prices are a good thing. Aside from that and the declines in furniture purchases, it is not clear that there is any signal here.
Posted by: JuanBobsDad at November 15, 2006 3:05 PM
You can spend tomorrow's income today, but eventually tomorrow comes with the bill.
Posted by: Matt at November 15, 2006 2:45 PM
Since gasoline purchases are to an extent nondiscretionary, and because gasoline prices have varied considerably over the past five months, I expect stripping out gas from your charts and averages would give a clearer picture of Joe and Minnie Lunchbucket's willingness to prop up the economy.
That's not to say your premises are not valid, but I would greet them - and your conclusions - with less doubt if the gasoline data were excluded.
Posted by: Bruce H at November 15, 2006 1:49 PM