Retail Sales

The Census Bureau had a press release this morning announcing that nominal retail sales fell -0.6% in February, the third consecutive fall.

Wall Street economists,analysts, strategists and managers have been watching these weak retail sales reports and speculating on why the drop in oil prices has not lead to the boost in consumer spending that virtually everyone expected.

The problem is that the nominal data can be misleading. Few know that the Bureau of Economic Analysis (BEA) as part of its GDP calculation also creates an unpublished series on retail sales that will be available later this month.  The BEA also estimates  deflators for the various components of retail sales and an estimate of monthly real retail sales by category.

The BEA data is much better than the series of nominal sales deflated by the CPI available in FRED ( the St. Louis Fed. public data base).

Over the previous three months –November, December and January –both Census and BEA estimated that nominal retail sales fell 1.3%.
But the BEA data also showed that over these three months the retail deflator fell -3.34%. Consequently, the -1.3% drop in nominal sales
is actually a 2.15%increase  in real retail sales, or almost 9% at an annual rate.

I expect when the BEA deflator becomes available the – 0.6% drop in February nominal sales will actually be a real increase.

The  sharp decline in the retail deflator is not just oil.  Almost every segment of retail sales except food stores and restaurants is showing a sharp drop in prices.  In 2013 and  2014 the change in the retail deflator  bounced around zero.  But as of January the year over year change in retail sales prices fell to -3.3%.  While the Fed is worrying about inflation and the Cassandras who have seen inflation right around the corner for years continue to forecast a massive inflationary surge, the data implies that deflation may be much more likely.