RETAIL SALES

Retail sales were reported down 0.1%, but that included gasoline and groceries. If you take them out nominal retail sales fell -0.4%. On a year over year basis real retail sales growth is sitting right about zero. The BEA deflator data will not be available until the end of the month but I made a rough guess for this months deflator and produced this chart displaying real retail sales in the various cycles. It is a cluttered chart and a little hard to read, but it still tells an interesting story.
Basically, real retail sales look very similar to what they did in other recessions except the mild 1970 and 2001 recessions were consumer spending held up through the downturns.

The really interesting story is the big pop in real retail sales shorty after 9/11. It really demonstrates how the American public responded. Moreover, it clearly showed that the pop in consumer spending much more than offset any weakness in travel because of 9/11. The data makes it obvious that the meme that 9/11 created massive economic weakness has little or no basis in fact.

The other data released this morning was import prices. Import prices jumped 1.7% and are now up 21.6% over June 2007. But import prices are weighted very differently then domestic production or consumption deflators. Over half of imports are agricultural and industrial raw materials, including energy. Final products such as capital goods, autos and other consumer goods account for about half of imports and they are up 2.1%, 3.1% and 3.4%, respectively from a year ago. But commodity prices are now falling and this implies this may be the last big import price increase we see this year..

The number I watch is the import price for consumer goods that excludes both autos and energy. It has now been rising for some time and there has been a clear change in trend.

But interestingly, when you look at the deflator for GAFO retail sales it looks like retailers are absorbing much of the increase in consumer goods prices. GAFO sales can be thought of as a form of core retail sales. It excludes autos, groceries, service stations and restaurants. Think of it as all the non-food item you find at WMT. It shows that retailers are absorbing much of the increase in import prices rather than passing it on to conusumers.

Often you see analysts, including senior federal reserve officers, deflating the major retailers same store sales numbers by the headline CPI and concluding that retail sales are much weaker than they actually are. For example you will often hear that Wal Mart reporting 3% gains in sames store nonfood sales means that real retail sales are flat when it actually implies that real sales are growing at about 5%.