Failure to deflate: flat consumer prices only slightly help real wages, sales
– by New Deal democrat (from Bonddad blog)
Failure to deflate: flat consumer prices only slightly help real wages, sales
Usually changes in the inflation rate are all about the price of gasoline. Not in October. Although gas prices fell -6.4% (compared with a decline of -5.0% a year ago), unlike one year ago net consumer price failed to decline, instead remaining flat.
Over a two month period, a -8.6% decline in gas (vs. -6.1% in 2013) coincident with a 0.1% increase in prices, vs. a gain of +0.2% in 2013. There seems to have been no single culrpit. A wide variety of other prices slightly more than expected.
As a result, while measures of real sales and real wages did increase, they did not do so as much as expected.
First of all, here are real retail sales:
These returned to August levels.
Real retail sales per capita are a long leading indicator, typically turning one year or more before the economy as a whole. October’s increase still leaves these below August’s level:
Real wages also increased, but are still below February’s level, and are still about 0.7% below their 2010 post-recession peak:
Of course, even that level was below virtually the entire 1970s peak for real wages:
since i’ve objected to the use of that real retail sales indicator every place else i’ve seen it, i might as well object here as well…
the use of the real retail sales metric seems to originate with the Statement of the NBER Business Cycle Dating Committee on the Determination of the Dates of Turning Points in the U.S. Economy and their economic indicators are in turn used to produce a package of charts on FRED linked at their Tracking the Economy page…one of those charts is Real Retail and Food Services Sales (RRSFS) for which the series is constructed by simply deflating “Retail and Food Services Sales” (RSAFS) using the Consumer Price Index for All Urban Consumers (CPIAUCSL). i object to that because almost 63% of the CPI-U is services, which have had a higher rate of inflation than good since the 90s…in fact, prices for durable goods have been steadily declining since then…by deflating retail sales with CPI; in some months, it would mean you’re deflating car, food and TV sales with inflating prices for rent, tuitions or medical costs..
by extension, i have the same problem with using that metric per capita, as shown in the second chart above..
now let me point out an inconsistancy in the post above…NDD says “gas prices fell -6.4% (compared with a decline of -5.0% a year ago), unlike one year ago net consumer price failed to decline, instead remaining flat.”
the 6.4% decline gas prices is not seasonally adjusted, whereas the other prices being unchanged it the seasonally adjusted metric…he should use the same metric for both if he’s making a point; seasonally adjusted gas prices fell 3.0%; unadjusted all items fell 0.3%…
see: http://www.bls.gov/news.release/cpi.t01.htm
rjs is correct, the measure of real retail sales constructed by FRED is a very poor second best estimate of real retail sales. The BEA publishes a measure of real retail sales that is much better because they properly deflate each individual series in the data.
You can find it here:http://www.bea.gov/iTable/iTable.cfm?reqid=12&step=1&acrdn=1#reqid=12&step=3&isuri=1&1203=10
FRED has the y/y change in real retail sales as of Sept at 2.6%
while the BEA has it at 4.3%. The FRED measure consistently underestimates the level of real retail sale.
I keep wondering why FRED uses its approach. I have sent them email complaining to no avail.