Once gain ever optimistic economists were off on the high side as Retail Sales Rise Less Than Forecast

Sales at U.S. retailers rose less than forecast and consumer confidence held near an eight-month low, indicating the economic slowdown will persist into the second half of 2010.

Purchases in July climbed 0.4 percent, led by autos and gasoline, figures from the Commerce Department in Washington showed today. A preliminary sentiment index for August rose to 69.6 from 67.8 the prior month, according to data from Thomson Reuters/University of Michigan.

Economists forecast retail sales would rise 0.5 percent, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from a 0.1 percent drop to a 0.9 percent gain. June sales were revised to show a 0.3 percent drop rather than the previously reported 0.5 percent decrease.

Influence on Growth

Excluding autos, gasoline and building materials, which are the figures used in calculating gross domestic product, sales dropped 0.1 percent in July after a 0.3 percent rise the prior month. Economists at Morgan Stanley in New York were among those lowering their estimate for consumer spending this quarter after the report.

“It doesn’t look like it will be a good back-to-school season, so that will probably lead to incredible bargains” as companies try to trim stockpiles, said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.

For more on back-to-school sales from a Gallup poll, please see Consumer Spending Slumps Even With Back-to-School Underway; Cisco, IBM Sales Suggest Corporate Spending Slowdown

Census Bureau Retail Sales Report

Inquiring minds are digging into the July Advance Monthly Retail Sales Report for further economic clues.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $362.7 billion, an increase of 0.4 percent from the previous month, and 5.5 percent above July 2009. Total sales for the May through July 2010 period were up 5.9 percent from the same period a year ago. The May to June 2010 percent change was revised from -0.5 percent to -0.3 percent.

Retail trade sales were up 0.4 percent from June 2010, and 5.9 percent above last year. Nonstore retailers sales were up 12.6 percent from July 2009 and gasoline stations sales were up 12.2 percent from last year.

Retail Sales Up How Much?

Retail sales are highly likely to be up from the early 2009 bottom, but the pertinent questions are

1. By How Much?
2. From What Bottom?

The problem is the Census bureau methodology is fatally flawed.

Survey Description Methodology

Each month, questionnaires are mailed to a probability sample of approximately 5,000 employer firms selected from the larger Monthly Retail Trade Survey (MRTS). Firms responding to MARTS account for approximately 65% of the total national sales estimate. Advance sales estimates are computed using a link relative estimator. The change in sales from the previous month is estimated using only units that have reported data for both the current and previous month. There is no imputation or adjustment for nonrespondents in MARTS. The total sales estimate is derived by multiplying this ratio by the preliminary sales estimate for the previous month (derived from the larger MRTS sample).

Sales Tax Collections

The accurate way to judge retail sales is by state sales tax collections, adjusted for increases in sales tax rate.

The Census survey misses the effect of companies that have gone out of business such as Circuit City and all kinds of small stores in vacant strip malls everywhere. Moreover, some of that Circuit City business went to places like Best Buy and Walmart, increasing same store sales at those stores. Some of those sales also vanished.

I discussed this last month in

In case you missed those articles, please take a look. Retail sales, as poor as the the government reports are, are even worse if you look at things from a sales tax collection standpoint.

Mike “Mish” Shedlock
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