Retail Sales - A Lot About Weather
The release of the retail sales data yesterday sure got a lot of people excited about the economy. In reality, this was much more a statement of inflationary pressures and weather related anomalies than economic improvement. The revision to January's data which increased to 0.6% growth will also help the 1st quarter GDP numbers. We currently estimate that it will come in around 1.5% growth in the 1st quarter, up from our previous 1% estimate, which is well below the current 2.8% in the last quarter of 2011.
More to the issue, however, is that while the numbers were good on the surface a lot of the boost came from sales at gasoline stations which relected a 3.3% jump in receipts at service stations. This made up a full 1/3rd of the increase in retail sales. Higher food costs also weighed in with a 1.1% increase and automobile stockpiles jumped by the most in more than a year in January. Excluding autos, gasoline and building materials which pour directly into GDP - retail sales rose 0.5% in February after a 1% increase in January.
Furthermore, as we have pointed out recently several times, the impact of warmer than normal weather tends to skew data points that seasonally adjusted for the effects of historically colder weather. Since Spring is now upon us those effects will go away which could have a more negative impact on the data going forward. The retail sales data is currently unadjusted for inflation, which we will get at the end of month and real retail sales figures show quite a different story with very little increase at all. Most importantly, the retail sales numbers don't conform to private sector data which is showing a far weaker picture of the consumer.
In the chart you can clearly see the peaking of retails sales on a year-over-year basis. This has happened twice before, the data only goes back to 1992, and each time it has preceeded economic weakness. The annual benchmark revisions to retail sales will be published at the end of April and the revamped data will likely show downside revisions to retail sales in recent years due to the overly optimisitic assumptions that are used when reporting in the first place. Real data always tells the story and the foot note is that with incomes still on the decline, inflationary pressures rising and seasonal boosts fading - the improvement that we have seen over the last couple of months could change rather quickly.