The 'Bad' Retail Sales Report Is More Complicated Than It Sounds

At first glance, the advance monthly sales for retail and food services numbers released by the Census Bureau (part of the Commerce Department) were disappointing, down 0.6%, plus or minus 0.5%, from October to November. But if you own, operate, or invest in retail, take heart, or at least a quick breather, because things are more nuanced than a single percentage might seem.

The numbers were bad in particular because they exceeded what the consensus of economic experts expected. “The first two big activity indicators for November, retail sales and industrial production, fell on the month and were worse than expected,” said Bill Adams, chief economist for Comerica Bank, in an emailed note. “Retail sales rose slower than inflation in November from last year meaning sales volumes are down this holiday season. November’s monthly decline was broad-based, affecting most categories of retail spending. The retail sales control group, which excludes several volatile categories and goes into the calculation of nominal GDP, fell 0.2% after a 0.5% increase in October, which was revised down from 0.7% in the prior release. Retail sales rose 1.3% in October, though, so the change from September to November is equivalent to a 0.3% monthly increase.”

Unlike many economic releases from the Census, this is not a case where the confidence interval around the result crosses 0, so there is clear statistical evidence that sales were down somewhere between 0.1% and 1.1%. But this was calculated on numbers adjusted for “seasonal variation and for holiday and trading day differences.”

In times and under conditions as turbulent as these, it seems more prudent to judge the year-over-year, non-adjusted figures for a longer read on trends. From that vantage, retail and food services sales were up 9.6%. A significant portion of that will be inflation, and in November, the year-over-year number was 7.1%, leaving 2.5% actual growth.

But there are some volatile parts of the overall retail number, gas stations in particular, but also auto sales and parts. Take those out and the year-over-year growth was 8.8%, or 1.7% after inflation.

Furniture and home stores took it on the chin, 1.0% before inflation, -6.1% after. Some other downers: sporting goods, hobbies, musical instruments, and books stores, down 2.8% (-4.3% after inflation); general merchandise, down 3.1% (-4.0%, after inflation); health and personal care, 4.1% (-3.0%, after inflation); and electronics and appliances, -6.4% (-13.5%, after inflation).

The bright spot was food services and drinking places, up 17.2% year over year, or 10.1% subtracting the effect of inflation. So, if the news makes you feel like taking up drink, maybe you should as an investment.