Data Briefing: How 'Real' Are Retail Sales?

Merrily, we roll along.

Data released this morning support the sense that the U.S. economy remains buoyant.  We wonder though.

Let’s get to the headline: the U.S. Census Bureau reported that retail sales rose 0.3% in December and up 5.8% from December 2018. 

It is curious to us, though, that the headline figure from the Census Bureau is adjusted for seasonal variation but not inflation.  Using the consumer price index as a deflator, the St. Louis Fed figures show just a 0.1% increase in retail sales in December from the previous month and up just 3.5% year over year.

Some details from the retail sales data worthy of note:

• Nonstore retailers (read on-line) garnered the highest sales figure of all categories excluding autos, posting $66.765 billion in seasonally adjusted sales, compared with $66.635 billion in November, an increase of about 2%.  For the year, nonstore retailers had sales of $778.374 billion, up 13.1%.
• Department stores continued to lag, with seasonally adjusted sales of  $10.936 billion vs. $11.019 billion in November, down about 0.8%.  For the year, department stores saw a 5.5% decline in sales.

Meanwhile, the Department of Labor said initial claims for jobless benefits fell 10,000 to 204,000, the fifth straight week of declines and reinforcing the sense that if you want a job you can get one.

The Great Fires of 2020

First published at TalkMarkets.com Jan. 15, 2020

We know, gentle reader, you have been mystified and concerned that our voice had been stilled by the deep state or that Ukrainian interlopers had taken control of our server.  Fear not, friends.  We are in fine trim and back to prognosticating as the teens of the 21st century give way to what we hope (we’re always ready for a good time) will be the roaring ’20s.

Without the benefit of Big Data (we consider it cheating), here’s what’s coming up, in no particular order because all are of importance.

• We “called” Donald John Trump’s election four years ago (see https://seekingalpha.com/article/3782936-happy-of-2016) but see all sorts of reasons why he should lose this time around.  Yet, as excruciatingly painful as it may be, we find it hard to believe a man — even an out-of-his-depth, Philistine man-child — enjoying the longest expansion in U.S. history with unemployment below 4% could possibly lose.  This depends, of course, on the likely outcome the president is not removed from office.  Despite what they say, Democrats must root for financial panic.

• Infamously, we have been perma bears on the stock market and extollers of the virtues of bonds.  It wasn’t a horrible call.  We advised buying the 10-year note at a 3% yield, and debt has done nicely since.  But we whiffed on the stock market, which appreciated 25% or so in 2019, depending on your index of choice.  Calling a top is futile, but we note that total market capitalization over gross domestic product is well over 150%, a level that historically signals significant overvaluation.  Either it’s different this time (for instance, the idea that the supranational nature of enterprise requires a more global perspective than U.S. GDP), or equity returns are destined to be negative this year.  Sell bonds (see inflation discussion below). Pare equity positions, but own Amazon (AMZN), the only retailer we see benefiting from either higher or lower consumer prices.

• Here’s a no-brainer: We’re doomed!  The most underreported story of 2019 was a continent on fire.  If charred koala corpses don’t do it, nothing will.  Climate change-fueled disasters will increase in frequency and intensity, but nothing will be done.  A wise confidante of ours says that any problem that calls for collective action will be opposed immediately by the Trumpist know-nothings who, like Huck Finn’s pap, blame “guvment” for any and all miseries.  Or, as another Huck Finn character, the Dauphin, says: H’aint we got all the fools in town on our side? And ain’t that a big enough majority in any town? Oh, the humanity!

• The Federal Reserve System’s Open Market Committee won’t raise rates in 2020.  When they do, it’ll be too late.  It will only do so if bond market vigilantism comes back in vogue. We know monetarism is out of fashion, last employed by the late Paul Volcker to conquer inflation in the 1980s.  The linkage between money supply and inflation appears to be severed, but only because the velocity of money has been on a downward trend since the great recession and has kept sliding during this long recovery.  Data from the Federal Reserve Bank of St. Louis show the M2 money stock increasing about 85% in the decade ending Dec. 31, while velocity has decreased 25%.  This is puzzling, but suggests to us inflation could return if velocity returns to a more “normal” level and lazy people like us don’t boost our productivity growth.  In any event, the Fed won’t risk the political fallout of raising rates, especially in Trump’s re-election year, unless the consumer price index itself turns decisively higher. 

• Unless we return to “a world lit only by fire” (William Manchester’s term for the middle ages), gold will become more of a barbaric relic, owned only by scolds who, like the puritans, are worried somebody, somewhere is having a good time.  Then again, the world may very well be on fire by the end of the decade.

• Some bubble will burst in 2020.  We can’t tell you if it will be housing again or corporate debt or student debt, but the world is due for something to blow up.  Take the corporate sector.  According to MacroMavens’ Stephanie Pomboy, the top three companies in the S&P 500 have more cash than the bottom 450 combined, leaving one to wonder how the nearly $10 trillion in corporate debt can be serviced if the world gets wobbly.

• On the sporting front, which, after all, is where the real money is, the rich get richer.  The New York Yankees with the signing of starting pitcher Gerrit Cole will be world champions this year, and the Dallas Cowboys, under new coach Mike McCarthy, will win the Super Bowl next year.  Matthew Wolff, the young golfer with the unorthodox baseball swing, will win two major tournaments this year.

Which reminds us that if we remember to keep our head down, turn not sway, and keep the left arm pinned to our chest, breaking 90 in the sporting life ahead is within our grasp.  If not, there’s always next year.  So we have that going for us.