Here we go again. The mainstream media is grossly misreporting another factoid in the daily sideshow of economic reports that ultimately have nothing to do with stock prices. But everybody hangs on them and many traders trade the releases, so it’s important to get a handle on the misinformation spewed by the Wall Street Journal, Bloomberg, CNBC and the rest.
It’s also important in that bull markets top out when the economy is strong, not when it’s weak. Strong data supports the central bank draining of the punchbowl that causes bear markets.
Here’s the WSJ headline. You would think that the sky is falling.
In the game of pin the tail on the expectations this was a big miss. The conomic shills who are called upon for their guesses on these misleading indicators had expected “only” a 0.4% decline.
The headline number is, as always, the seasonally fudged fictional representation of reality that passes for actual data.
Here’s the actual data.
Nominal retail sales, not adjusted for the drop in inflation, fell by $107 billion in January versus December. January is always a big down month. The average decline for the past 10 years was $88 billion. The January 2014 decline was $95 billion. On this basis, the number does look weak.
On a year to year basis, nominal sales rose 2.8%, which is the smallest yearly rate of increase since March. But it is still within the growth rate range of the past 2 years.
This still looks pretty weak until you consider that consumer prices overall are dropping. We also know that gasoline sales dollar volume has dropped like a stone.
So I backed out gasoline sales and adjusted the nominal sales for changes in the price level over time. I used CPI through December and estimated January CPI using the State Street PriceStats measure, which CPI tracks closely. The result looks like this.
In real terms sales dropped 20.3% month to month. That compares with a 10 year average of 21.1% and January 2014’s 19.9%. All in all it was a middling to slightly better than average performance.
Next I backed out gasoline sales, where the dollar volume has been down sharply, and divided by total population to get a measure of spending per person. Here the picture changes dramatically. Adjusted for price level, gas sales, and population, it’s clear that retail sales, on things other than gas, per person, have risen markedly in recent months. While the top 10% of the income spectrum does most of the spending, it’s still a remarkable surge.
The annual growth rate of real retail sales per capita has been rising for a year and in January it spiked to a year to year growth rate of 5.6%. That’s the highest growth rate since November 2010 at the peak bungee rebound phase of the recovery. Some consumers clearly have shifted their dollars formerly spent at the Mini Mart gas pump to WalMart, Costco, and maybe even the local car dealer. That’s what was expected and it is, in fact, happening. But the other shoe, the weakening that will occur from the layoffs of highly paid oil and gas workers, plus the shutdown of orders of related machinery, equipment and materials, and the major ripple effects that will follow, are still to come.
This kind of spending orgy smacks of the final stages of a bubble. Only nobody realizes it yet. They’re too busy wailing over the grossly misleading headline number. In the months ahead, those numbers will begin to reflect the actual trend and move higher. That will surprise Wall Street analysts and media pundits, and perhaps even the Fed. By the next couple of Fed meetings, the Fed will have all the ammo it needs to raise the curtain on the circus act of pretending to raise interest rates while massive amounts of excess cash remain in the banking system.
That circus is sure to roil the markets. Havoc awaits.