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Friday, October 15, 2010 10:27 AM

Retail Sales Rise More Than Forecast; Once Again I Ask "Really?"

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Bloomberg reports Retail Sales in U.S. Increased More Than Forecast

Retail sales in the U.S. climbed more than forecast in September, easing concern consumer spending will weaken and endanger the recovery.

Purchases rose 0.6 percent following a 0.7 percent gain in August that was larger than previously estimated, Commerce Department figures showed today in Washington. Other reports showed inflation cooled even further last month and manufacturing in the New York region accelerated.

Retailers like Target Corp. and Wal-Mart Stores Inc. are sweetening discounts and using promotions ahead of the holiday season to move merchandise as joblessness hovers near a 26-year high. Federal Reserve Chairman Ben S. Bernanke today said gains in spending would probably be “uneven” because unemployment was too high, and indicated that additional monetary stimulus may be needed.

“They’re reasonably solid consumption numbers,” said Jim O’Sullivan, global chief economist at MF Global Ltd in New York. “Momentum is going to be up again in the fourth quarter.”

Once again I am questioning the numbers. They do not fly in in relation to Gallup Poll Shows Discretionary Spending at All Time Low; Trends Support Double-Dip Theory
Lower- and middle-income Americans' self-reported average daily spending in stores, restaurants, gas stations, and online averaged $48 per day during September -- down $6 from August and $16 from July. Consumer discretionary spending by these Americans making less than $90,000 a year is now at its lowest level since Gallup began daily tracking in January 2008, as the recession was just getting underway.

See above link for more charts.

Retail Sales Not Believable

Calculated Risk has a nice chart in Retail Sales increase in September

Retail sales are up 9.6% from the bottom, but still off 3.2% from the pre-recession peak.

Retail sales had moved mostly moved sideways for six months, but this is now the high for the year.
Retail sales may be at their best point in the year, but sales are certainly not within 3% of the all time high. If they were tax revenue collection would be exceeding all time highs given increases in sales taxes.

Sales Tax Collections Down 5.9% June 2010 vs. June 2008

In spite of numerous sales tax hikes, tax collections are still 5.9% lower than two years ago. Moreover, June of 2008 was not the pre-recession peak. November of 2007 was the pre-recession peak.

Bear in mind those statistics are as reported in Retail Sales Rise .4% from July - How Far to Pre-recession Levels? Where to from Here? reflective of the second quarter.

See link for several charts.

Unless consumers have gone on a tear in the third quarter (highly unlikely with renewed slowdown in housing as well as the recent Gallup survey above), these retail sales reports are simply not believable.

What's clear is the methodology is flawed. By how much is the question. The way to figure out how much is to factor in all sales tax hikes and compare state sales tax collections. I will take another look at that as time permits.

Mike "Mish" Shedlock
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