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AM Economics: Retail sales were bad, but not quite as bad as the headline number looks at first glance



January 14, 2009 – Comments (3)


Look, I'm not here to BS anyone.  The economy is clearly in bad shape, and this morning's larger than expected drop in retail sales is evidence of that.  According to the government (cough, cough, take this number with a grain of salt), retail sales in December fell 2.7%.  Here's how bad this headline number is:

- It's more than double the 1.2% drop that analysts were expecting.

- It represents a record sixth consecutive month of lower retail sales, which hasn't happened since the government began keeping records.

- The 3.1% drop ex autos is the worst retail sales number since at least 1970.

Having said all of this, the December number is not quite as bad as it initially appears.  The retail sales numbers that the government reports are nominal, meaning that they are not adjusted for inflation.  We are currently in a deflationary environment, so a large chunk of the lower retail sales figure can be explained by the rapidly falling prices of goods. 

For example, gasoline sales dropped by a massive 15.9% during the month.  While consumers are driving a couple percent less than they were, clearly the majority of this drop is a result of the massive drop in the price of oil and in turn gas.  If one backs out gasoline from the December retail sales number, sales only dropped by 1.4% for the month. 

While deflation is obviously not a good thing, lower prices are good for consumers.  Hopefully many of the people out there who are being hurt by the slow economy are at least being helped some by the lower prices that we are seeing for gas and other goods.

Again, the numbers are bad...just not quite as bad as the "AHHHHH THE SKY IS FALLING AND MY HAIR IS ON FIRE!!!!!!" headline number.


3 Comments – Post Your Own

#1) On January 14, 2009 at 10:53 AM, FleaBagger (27.41) wrote:

After all the inflation we've seen, true deflation would be a good thing, but you're just talking about retailers taking it on the chin and calling it deflation.

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#2) On January 14, 2009 at 11:40 AM, charlesblazer (30.56) wrote:

Funny how, months ago, the spike in gas and food prices helped produce inflated sales numbers that were then variously spun to show "it's not that bad" or even "a recovery has begun."  Now the tables are turned.  It's almost comical.

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#3) On January 14, 2009 at 1:55 PM, EPS100Momentum (73.34) wrote:

Trust me they are extremely bad numbers, Worst numbers I have ever seen in my lifetime.  I am a perma Bull and when I say something is bad then its got to be extremely bad for me to say its bad.

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