Economists Still Upbeat: Retail Sales Drop Seen as "Blip"

By the time economists see the next recession it may be half-over. Heck, it might even be over (it's happened before).

Through thick and thin economists remain optimistic. Today, despite an easily predictable decline in retail sales, economists did not see the decline coming. Instead, Huge Miss in Retail Sales Seen as a Blip.

U.S. retail sales recorded their largest decline in 11 months in December as demand fell almost across the board, tempering expectations for a sharp acceleration in consumer spending in the fourth quarter.

Economists, however, cautioned against reading too much into the surprise weakness, noting that holiday spending made it difficult to smooth December data for seasonal fluctuations.

"Faulty seasonal adjustments from shifts in holiday spending patterns are probably more to blame for the December decline," said Steve Blitz, chief economist at ITG in New York. "Looking at the last three months, spending is not collapsing."

Bricklin Dwyer, a senior economist at BNP Paribas in New York, said fewer post-Black Friday shopping days in November than normal threw off the so-called seasonal factor used to adjust the data, resulting in a lower December sales number.

"For January 2015, this seasonal factor will boost sales by the largest factor since 2006," said Dwyer.

"This combined with the fact that we have seen a massive boost to consumer's wallets as a result of the rapid decline in gasoline prices, suggests that January could be a big month that reverses much of the December drop," he said.

In December, a so-called core sales gauge that strips out automobiles, gasoline, building materials and food services, fell 0.4 percent after a 0.6 percent rise in November.

Economists had expected this metric, which corresponds most closely with the consumer spending component of gross domestic product, to rise 0.4 percent last month.

Unbridled Optimism

A decline in core spending (0.4% to the downside vs expectations of 0.4% to the upside) did not dampen economist optimism. (For details, please see Retail Sales Post Huge Downward Surprise; Lower GDP Revisions Coming Up; Economists Easy to Surprise)

While there easily could be a seasonal boost in January, what about autos? And what about declining wages?

More Blips

In December, Average hourly earnings for all employees unexpectedly declined 0.2%, $0.06 per hour in December vs. November. This was the largest month-to-month percentage drop since the data series began in 2006. (See Average Hourly Wages vs. CPI: Are You Ahead?)

On January 6, I commented on auto sales in Economists Upbeat Despite 4th Consecutive Decline in Factory Orders

"Auto sales are expected to reach their highest level in a decade this year, bolstered by strong job gains and cheap gas."

Expect More Surprises

One thing you can count on for 2015 is surprises, heavily skewed to the downside, even if the "expected" January sales bounce occurs.

Factory orders are down 4 months, wages are down, retail sales are down with November revised lower, but don't worry, these are all blips.

Very few see a storm brewing even though stock prices are in la-la land, and the recovery is quite long in the tooth.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com