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Tuesday, February 15, 2011 5:24 PM

Population Adjusted Retail Sales and the "Real" Retail Sales Depression; 3 Factors to Consider Going Forward

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In Retail Sales Rise 7th Straight Month, Now Above Pre-Recession Peak; Making Sense of the Numbers; Housing and Auto Perspective I questioned whether retail sales are really rising and posted some charts of autos, housing, and sales tax data (the true measure of retail sales).

Housing is not a part of retail sales but housing does affect retail sales because of appliance sales, carpet, paint, fixtures, landscaping, etc.

This was my conclusion.

Car sales are not up in number, but they are up in price. The same applies to food, and many other items. Population is also growing. All of those things need to be factored into the equation.

Even if one accepts the retail survey is accurate (I don't because it misses too many small stores that went out of business and are still closed), real sales have certainly not recovered. That puts pressure on states because expenses, especially medical expenses and pension benefits have soared.

The Good News

  1. The good news (if you believe it), is that retail sales are finally back to January 2008 levels.

The Bad News

  1. State expenses are way higher than 2008
  2. Job growth is anemic and will likely stay that way
  3. Stimulus money has been spent
  4. Congress is unlikely to bail out states
  5. Interest rates are higher
  6. Mortgage rates are higher
  7. Gas prices are higher
  8. Congress is seeking spending cuts
  9. States are hiking sales and income taxes
  10. Property taxes are rising in spite of falling home prices
  11. Home prices are falling

Ironically, points 4, 8, and 11 are good things for the long-term health of the economy but economists will not see it that way because it will impact short-term growth.
Population Adjusted Retail Sales

I did not factor in population growth but noted that it should be done. "Dshort" did factor it in and has a nice set of charts that suggest The "Real" Consumer Economy Remains in Depression
Monthly Retail Sales With Regression Lines

The green trendline is a regression through the entire data series. The latest sales figure is 8.1% below the green line end point.

The blue line is a regression through the end of 2007 and extrapolated to the present. Thus, the blue line excludes the impact of the Financial Crisis. The latest sales figure is 16.1% below the blue line end point.

[Mish note: the above chart is not adjusted for population growth and income. The following chart is]

Population Adjusted Retail Sales

Consider: During the past 21 years, the U.S. population has grown by over 22% while the dollar has lost about 37% of its purchasing power to inflation. When we adjust accordingly, the rebound in retail sales from the bottom in April 2009 merely gets us back to the per capita spending during the late summer of 1999.

Retail sales have been recovering since the trough in 2009. But the "real" consumer economy, adjusted for population growth still in a state of depression — 8.3% below its all-time high in January 2006.
Dshort has some great charts. Inquiring minds will want to give his site a closer look.

Long Term Retail Spending Factors

Three factors that need to be discussed in light of retail spending trends are demographics, taxes, and changing consumer attitudes towards debt.


  • Boomers are past their peak earning years and headed for retirement.
  • Boomers in aggregate will need to downsize their lifestyles.
  • Those wanting to downsize their houses and simplify their lifestyle have no one to sell to. This will keep enormous downward pressure on home prices.
  • Those fresh out of college cannot afford and will not buy the cars and homes their parents had.
  • Many college graduates are despondent over being hundreds of thousands of dollars in debt with no way to pay it back.
  • Student loans programs benefit no one but schools and teachers. Eventually students will revolt.

Taxes, Stimulus, Pensions

  • Many states are raising sales taxes, property taxes, income taxes and fees. This takes money out of consumer pockets to feed untenable wages and benefits for public union workers.
  • Cities and states are bankrupt over untenable public union wages and benefits. Either wages and benefits must fall or taxes have to go up.
  • The federal government will either raise taxes, cut spending or both. Either way will put a damper on growth and retail spending. Raising taxes will put a long-term damper on growth. Cutting spending is good for the long haul but will put a short-term damper on growth.

Changing Consumer Attitudes

  • There has been a massive secular change in consumer attitudes towards debts.
  • The trend is housing is towards cash-in refis from cash-out refis.
  • Banks are reluctant to lend except to the most credit-worthy borrowers.
  • Credit-worthy borrowers do not want to borrow.
  • Kids see their parents or grandparents arguing over debt, even losing their homes over debt, how vowed to not get in the same situation.

Retail sales are up but $150 billion in stimulus spending to states is going away. Spending cuts in Congress are coming. Pent-up demand for car sales will end, but pent-up need to dump housing inventory is building. Taxpayers are fed up, but many states are hiking taxes anyway.

All of those items place enormous headwinds on retail sales. It is quite possible the latest set of retail numbers is about as good as they get. That certainly is not priced into equities or nearly anyone's economic model.

Mike "Mish" Shedlock
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