On the surface, the January retail sales report released on February 13 doesn’t look so bad, in spite of the hysterical headlines about the big “miss” because of January’s bad weather. Street economists had a consensus guess that the seasonally adjusted headline number would be unchanged from December. Instead the number dropped by -0.4%. The analysts blamed the weather. Being the diligent observers that they are, they were shocked to discover that the weather was bad in January.
The actual, not seasonally adjusted number for January actually wasn’t as bad as all the media teeth gnashing implied. This was just another case of bad economic guesswork, not bad economic data.
Retail Sales Look Good- Click to enlarge
Nominal retail sales were up 3% year to year, not great, but not terrible. The actual month to month change in January was a drop of -19.3%. That’s pretty typical for January, in fact it’s better than the 10 year average January drop of 21%. January 2013 dropped 18.7%, but January in each of the 3 prior years January dropped by more than 21%. Any way you slice it, last month just wasn’t that bad.
Even the trend looks really healthy. Nominal sales in January were 19% above the peak January level in 2007 and they are 24% higher than they were in January 2009. That’s a growth rate that’s nothing to sneer at.
But alas, as so often happens, the headlines don’t tell the whole story or even an accurate story. Those numbers aren’t adjusted for inflation. Nor do they reflect the spending of the average American. Backing out inflation and breaking the data down on a per capita basis gives us a clearer picture of how most Americans are faring, not just the top 10% who do the bulk of the retail spending.
It also makes sense to back out gasoline sales. They are mostly non discretionary and are relatively inelastic. They act as a tax when prices are increasing and as cash in consumer pockets when they are decreasing. Rising gas sales due to rising prices falsely inflate total retail sales, when in fact consumers were spending less on everything else. Conversely, when gas prices fall, it reduces total retail sales, when in fact consumers may have been buying more of everything else. I want to know what’s the status of sales of everything else in terms of actual sales volume, not nominal prices.
Real Retail Sales Ex Gas Per Capita – Click to enlarge
This chart looks at that and compares it with the action of the total nominal retail sales trend for the current month and the same month in each prior year, superimposed on the chart of the Fed’s balance sheet and the S&P 500.Total retail sales are trending in lockstep with stock prices which in turn are trending in lockstep with the Fed. The trend of retail sales has been amazingly consistent whether the Fed was pumping or pausing, thanks to the heroic efforts of the 10%, and especially the 1%, to keep spending. God bless their hearts for keeping the US economy afloat.
But looking at the real spending per capita we’re left to wonder, where’s the trickle? Apparently it’s not reaching the average American. Even with the 1% disproportionately boosting per capita spending; even with foreign shopping tourists invading the US in droves to get bargains at northern border Walmarts or Fifth Avenue and Rodeo Drive shopping districts catering to rich Europeans and Asians, the trend of sales per capita is as flat as a pancake. There’s been almost no growth in the past year. The volume of sales per capita grew by 0.7% over the past 12 months. With the 1% and shopping tourists fattening those numbers, it’s a good bet that most Americans actually bought less stuff this January than they did a year ago.
The long term trend is even more bleak. In spite of gaining 10.3% off the recession low in 2009, per capita sales volume is still down 5.1% since January 2007. Most Americans just aren’t doing very well. How long is it likely that the 1% or the 10% will be able to carry nominal retail sales and US stock prices higher when the majority of the American people are not experiencing the illusion of economic growth in a real way.