Chart of the day: Retail Sales

Yesterday, I said that investors would begin to focus on the real economy now that the financial crisis has eased somewhat due to massive government intervention. Today, retail sales figures for September 2008 were released by the United States and they were much worse than expected. As a result, shares have dropped, with the S&P 500 down as much as 5%.

Reading the business press, one gets a very distorted view of reality though. Because journalists seem to focus on the meaningless month-to-month statistics at the exclusion of more meaningful data trends. For example, AP reports that retail sales fell 1.2%, the most since August 2005. How does that compare to last year? What do the figures look like on an inflation-adjusted basis? What is the trend? None of this is explained (see story here). This does us all a huge disservice.

I took a look at the retail sales data and adjusted it for inflation and compared it to the same period last year. Below is the chart.

As you can see from the data, real retail sales growth is deeply negative at -5.5% versus last September. And the trend is clearly down. However, retail sales data is very volatile from month-to-month. In September 2001, retail sales plunged 1.8% because of 9/11, only to rise 6.6% in October. Therefore, I have also charted a 3-month average sales growth chart which smooths out these month-to-month spikes. Here again, one can see that real retail sales are deeply negative and trending down.

Unlike in the last business cycle, where lowering interest rates to 1% kept consumers spending through an economic downturn, this time this is not likely to be the case.

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