Retail sales rose for the seventh consecutive month and are allegedly above pre-recession levels. Tax data seems to dispute that notion, as do auto sales and new home sales. The latter is not part of retail sales, but the furnishings that go into houses are. Let’s take a look at this a number of ways to see if we can make sense of it all.
Retail Sales Rise 7th Straight Month
MarketWatch reports Sales at U.S. retailers rise 0.3% in January
Retailers’ sales rose 0.3% last month as consumers spent more on gasoline, autos and online goods, the Commerce Department reported. It was the smallest increase since last July, however. Sales also rose 0.3% excluding the volatile automotive sector.
The increase in sales fell short of Wall Street’s expectations. Economists surveyed by MarketWatch had forecast sales to rise by 0.6% overall and by 0.6% excluding the auto segment.
The government also revised sales data for December 2010 lower — to a 0.5% increase from 0.6% as originally reported.
“Spending growth has clearly lost some momentum,” said senior U.S. economist Paul Dales of Capital Economics.
Stripping out gas and auto, retail sales rose a meager 0.2% last month. Sales dropped 2.9% at building-supply stores and declined 1.3% for retailers who sell hobby items, sporting goods, books and music.
Restaurants and bars also saw a 0.7% decline in sales — the biggest drop since March 2009.
Chart of Retail Sales
The above chart is courtesy of Calculated Risk who writes “Retail sales are up 13.7% from the bottom, and now 0.4% above the pre-recession peak. “
Here is a link to the Census Bureau Advance Monthly Retail and Food Services Report for January 2011.
Sales Tax Data
The only valid measure of retail sales is state sales tax reports. Unfortunately time does not permit a complete analysis. Not only would one have to look at 50 states, one would also have to adjust every state’s tax collections for increases in sales taxes.
As a one-state snapshot, I frequently look at Texas to see what its trends are. Texas may or may not be a representative state, but it can provide some clues.
Texas Economy in Focus
Please consider the Texas Comptroller’s Economic Outlook updated February 11, 2011.
Job growth, sales tax collections – both from business and consumer purchases – as well as automobile sales, signal that the Texas economy has emerged from the recent recession.
Another indicator that the state’s economy has been comparatively healthy was the U.S. Bureau of the Census report that Texas added more people (nearly 4.3 million) than any other state between the census counts of 2000 and 2010.
Entering 2011, more than half the jobs shed by employers during Texas’ shorter recession have already been recovered as our economy recovers more quickly than the U.S. as a whole. Nationally, only 13.4 percent of recession-hit jobs had been recovered ending 2010.
Texas and the nation returned to economic growth in 2010, with the nation increasing its GDP by 2.8 percent and Texas increasing its GSP by 3.4 percent.
- Texas sales tax receipts for January 2011 were 10.4 percent higher than for January 2010.
- For fiscal 2010, state sales tax receipts were down 6.6 percent from fiscal 2009.
- Motor vehicle sales tax collections for January 2011 were 19.6 percent higher than for January 2010.
- The average core transaction price nationwide for a new car or truck during the first 15 days of December 2010 rose 12.5 percent to $28,484 from $25,326 in the first 15 days of December 2009.
- For the first 15 days of December 2010, total national new auto sales were 555,997 units, up 9.9 percent compared to first 15 days of December 2009.
- Nationally, leases accounted for 28.1 percent of new vehicle sales in November 2010, an increase of 15.6 percent from November 2009.
In Texas, an estimated $18 billion in federal stimulus money is flowing to state and local governments.
That looks pretty good. However, there was $18 billion in stimulus money that will be headed out the door. Moreover, sales tax receipts for fiscal 2010 were down from fiscal 2009, and 2009 was down from 2008. That is in spite of an influx in population.
Texas State’s sales tax collections up again but not enough
On December 8, 2010 the Statesman noted Texas State’s sales tax collections up again but not enough
Texas’ sales tax collections in November increased 8.7 percent over the same month a year ago, marking the eighth straight month of growth, according to figures released by Texas Comptroller Susan Combs on Wednesday.
So far, the first three months of the fiscal year have generated about $5 billion through the sales tax including the $1.84 billion collected last month. The November collections reflect transactions in October.
While a marked improvement over last year, that first-quarter total is still around $400 million below the collections at the same point two years ago, which is a more telling indicator of the state’s revenue situation.
The approved 2010-11 budget is based on projections that sales tax collections would hold steady in the first year of the budget and then increase by 7 percent in the second year.
The actual first-year collections were down about 6 percent. And the state is still not keeping pace with where it is supposed to be for the second year nevermind making up ground for the previous year’s lackluster performance.
Did Texas finally catch up? I am not so sure. What happens when stimulus fades out?
Auto sales are well below the pre-recession totals. One way to make up for the difference is if average car prices are considerably up from late 2007. That seems likely as noted by Texas Comptroller Susan Combs.
“The average core transaction price nationwide for a new car or truck during the first 15 days of December 2010 rose 12.5 percent to $28,484 from $25,326 in the first 15 days of December 2009.“
New and existing home sales are not part of retail sales. However, the appliances, furniture, landscaping, carpet, paint, remodeling work, etc., is.
New Homes Sales
The above chart from New Home Sales increase in December
New home sales certainly do not support the notion that retail sales should be improving. Those are incredibly dismal numbers.
Existing Home Sales
The above chart from December Existing Home Sales: 5.28 million SAAR, 8.1 months of supply
While new home sales do not support the notion of rising retail sales, existing home sales might. Certainly there was a huge spike in home sales related to various tax incentives, and the buyers of those homes are highly likely to re-carpet, buy new appliances, buy paint, improve landscaping, etc.
The question now, is where to from here?
“Real” Retail Sales
Finally, here is one chart that helps tie it all together.
“Real” means inflation-adjusted (price-adjusted). Car sales are not up in number, but they are up in price. The same applies to food, and many other items. Population is also growing. All of those things need to be factored into the equation.
Even if one accepts the retail survey is accurate (I don’t because it misses too many small stores that went out of business and are still closed), real sales have certainly not recovered. That puts pressure on states because expenses, especially medical expenses and pension benefits have soared.
The Good News
- The good news (if you believe it), is that retail sales are finally back to January 2008 levels.
The Bad News
- State expenses are way higher than 2008
- Job growth is anemic and will likely stay that way
- Stimulus money has been spent
- Congress is unlikely to bail out states
- Interest rates are higher
- Mortgage rates are higher
- Gas prices are higher
- Congress is seeking spending cuts
- States are hiking sales and income taxes
- Property taxes are rising in spite of falling home prices
- Home prices are falling
Ironically, points 4, 8, and 11 are good things for the long-term health of the economy but economists will not see it that way because it will impact short-term growth.
Please see Population Adjusted Retail Sales and the “Real” Retail Sales Depression; 3 Factors to Consider Going Forward for additional charts and discussion.
Mike “Mish” Shedlock
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