Because I was out of commission pretty much all day on Friday, I haven’t been able to crunch the U.S. retail sales numbers until now. But, let me do a recap today and breakdown what these numbers might mean for the U.S. economy. The headline analysis has been that these were the worst numbers since record-keeping began. But, this is a very narrow view because the present data series only goes back to 1992.
However, record keeping for retail sales does go back to 1953 and I have the data for the previous data series from 1967 to 2001. Using these numbers, I have concluded that, while the numbers certainly don’t look good, we have not yet plumbed the depths seen in the 1980 recession. Nevertheless, the drop is already worse than any data except numbers from the 1973-1975 and 1980 recessions.
The retail sales numbers were ugly because the month-to-month drop was enormous — 2.8%. Think about that: that is something like a 30% annualized rate, serious Great Depression-like ugliness.That said, retail sales are somewhat volatile despite the seasonal adjustments and the data series is only 16 years old. So, I have done a number of things to the stats to get a more comprehensive view.
- I looked at year-to-year comparisons to get a better longer-term trend analysis as opposed to month-to-month comparisons, which I hate.
- I also adjusted the data for inflation to get numbers that are comparable across business cycles. I used the CPI for adjustments. But, one might be able to make the case for using the PCE (Personal Consumption Expenditures) Deflator as well.
- I also used 3-month average data in order to smooth out potential month-to-month volatility. For example, the last data point shows inflation adjusted retail sales for August-October 2008 were down 6.4% from the same numbers from August-October 2007.
- Finally, I took the previous data series and combined it with the present data series for the period from 1967-1992 in order to get 40 years of data instead of 16 years.
- I did not look at non-seasonally adjusted data due to time constraints. But in doing year-to-year comparisons that would have been preferable.
The result of all of that is the chart below.
What you see in the chart above is that the retail sales adjustment began in November 2007. This is a really good chart because it side steps the artificial boost from the stimulus package this summer and reveals the weakness we have seen from November 2007. What is also apparent from the chart is that we have fallen off a cliff since the stimulus wore off. Moving from -1.7% in May to -6.4% in October.
I should also point out that the recession of 2001 saw almost no retail sales adjustment because of the easy money provided by the Fed as stimulus. As you can see from the first chart, this is an aberration — and it points the finger for the imbalances that created a more severe downturn today at the Federal Reserve.
So, where are we going from here? Judging from previous business cycles, one would think we have many more months to run. For example, the average real year’s change in retail sales peaked in September 1989 and didn’t trough until March 1991. The numbers were negative as far as July 1992, a full 16 months after the end of that recession. Given this is a much more pronounced recession than the one in 1990-1991, it should follow that this represents a best case scenario. Accordingly, we should anticipated slow growth for the duration of 2009. Looking at the numbers for other recessions paints an even more dire picture, unfortunately, especially with regards to the depth of the downturn.
My own forecast here is that we should see a minimum of a 10% fall year-on-year in retail sales by the spring. How quickly, we start to rebound remains to be seen. However, given a fall of that magnitude, we can’t expect to see any real economic pickup until late in 2009 or 2010 at the earliest.
Source
Advance Monthly Sales for Retail and Food Services – U.S. Census Bureau