Today’s world thrives on instant gratification, tweets and sound bites. In-depth analysis rarely makes headlines, and by the time the in-depth analysis is available, the media have moved on to the next tweet sensation. And so, the business community was left with only a superficial reading of April’s retail sales numbers, possibly resulting in erroneous conclusions about the economy’s direction. Here are some of the instant headlines from the May 13 release of April’s retail sales data:
- Retail Sales go nowhere in April (Business Insider)
- Retail Sales Disappoint Again (Bloomberg Business)
- Surprisingly Sluggish Spending Weighs on April Retail Sales (US News)
The consensus was for a 0.2 percent rise from the March level, but the reading came in with flat (0.0 percent) growth. Looks sluggish when viewed this way. But, the March data was revised upward by 0.2 percent (from 0.9 percent growth to 1.1 percent growth). In essence, the actual level of retail sales was right where the market had forecast that level to be. So, it is only reporting bias that made it seem like a recession is right around the corner.
Economy shrank 0.7% in the first quarter
Now facts are facts. With employment gains in excess of 200,000 in 13 of the last 14 months (averaging more than 252,000 over that time period), and with new claims for unemployment insurance (one of the Conference Board’s primary leading economic indicators) at a 15-year low, the suggestion that a recession could be approaching is ludicrous. Yet, it is hanging out there.
Let’s dig a little deeper (i.e., some in-depth analysis) into the retail sales numbers:
- The first issue is that this particular measure is quite volatile on a month-to-month basis and relying on one month’s data is quite a risky bet.
- In April, motor vehicle sales were indeed down 0.4 percent to a seasonally-adjusted annual rate of 16.5 million units, but that is because March was a big catch-up month (17.1 million units) from a weather-depressed February (16.2 million units). Also, April always has seasonal adjustment issues due to the fact that the Easter holiday changes dates each year. A better way to gauge April’s sales is by looking at the average of February and March, i.e., 16.6 million units. Also, if you look at a long-term chart of auto sales, you would note that 16.5 million units is quite high and compares favorably to the heady days of ’02-’07. So, auto sales alone should lead to the conclusion that Americans are spending, at least on new cars.
- Economist David Rosenberg points out some other anomalies in the data. Department store sales were off (-2.2 percent) as were furniture store sales (-0.9 percent), but there are others like pharmacies (+0.8 percent), sporting goods (+0.8 percent) and web sales (+0.6 percent) that were up. Of particular interest is restaurant sales, the only service-oriented business that is included in the retail sales data. This particular category, according to Rosenberg, has proven itself to be a leading indicator of consumer spending. In April, it rose 0.7 percent, and it is up 8.6 percent on a year-over-year basis.
But here is the real kicker – this particular series measures less than 40 percent of total consumption. America is a service-based economy. Of the two ISM (Institute of Supply Management) Indexes, the Manufacturing and the Non-Manufacturing, the media emphasizes the Manufacturing Index despite the fact that the Non-Manufacturing Index has a weight nine times greater for the economy. And recent history shows significant strength in the latter.
There are many services that are very important to the U.S. economy that are not included in the retail sales data. Results for these come out at the end of each month and are largely ignored by the media. But, as David Rosenberg has pointed out both to his private clients and in his public statements, they are really important and should not be ignored. Using March’s data (the latest available) and looking at the percentage growth over the past year so as not to get caught up in the vagaries of a single month’s change or any seasonal adjustment issues, below is a set of spending data showing the growth in categories that represent 25 percent of consumption spending:
Media outlets predicting another recession tend to focus on only a fraction of economic numbers while ignoring other indicators, including a sharp uptick in amusement park attendance.
- Air Travel: +5.5 percent
- Hotels and Motels: +7.4 percent
- Auto Leasing: +11.0 percent
- Theme Parks: +10.4 percent
- Health Care: +6.6 percent
- Education Services: +4.6 percent
- Personal Care (Spas and Salons): +4.0 percent
- Telecom: +3.5 percent
Lumped together, these have grown 6.5 percent through the end of March. So much for an approaching recession!
Mark Twain’s infamous phrase, “There are lies, damned lies, and statistics,” is apropos here. You can often twist data to make it echo your point of view, and that appears to be what some media outlets have done with the retail sales release. Either that, or they just follow the superficial crowd. A more in-depth view indicates that Americans are spending at a healthy clip.
In all honesty, the retail sales data weren’t stellar, but they were far from the disaster that the media have painted. Given the recent economic history for America’s consumers and middle class, while the growth rate of spending may be disappointing to the instant gratification crowd, maybe slow, steady and for the long-run is a better condition than fast, furious, and then full stop because of too much debt.
By Robert Barone, Ph.D
Robert Barone, Ph.D., is a registered investment advisor of Concert Wealth Management, Inc. and an employee of Universal Value Advisors, a NV LLC. Advisory services are offered through Concert Wealth Management, Inc., a registered investment advisor. Robert is available to discuss client investment needs. Call him at (775) 284-7778.
Statistics and other information have been compiled from various sources. Universal Value Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information. A more detailed description of Concert Wealth Management, its management and practices is contained in its “Firm Brochure” (Form ADV, Part 2A) which may be obtained by contacting UVA at: 9222 Prototype Dr., Reno, NV 89521. Ph: (775) 284-7778.