Economic First Look: Focus on Retail Sales

 | Jan 07, 2012 | 8:30 AM EST
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  • Dennis Lockhart, President of the Atlanta Fed (voter in 2012), speaks, 12:40 p.m. (all times EST)
  • Consumer Credit, 3:00 p.m.


  • National Federation of Independent Businesses (NFIB) Small Business Optimism Index, 7:30 a.m.
  • Wholesale Trade, 10:00 a.m.
  • Jon Williams, President of the San Francisco Fed (voter), speaks, 10:30 a.m.
  • Esther George (new member of the FOMC, President of the Kansas City Fed, voter), speaks, 1:00 p.m.


  • Charles Evans, President of the Chicago Fed (non-voter), speaks, 8:40 a.m.
  • Dennis Lockhart, President of the Atlanta Fed (voter), speaks, 9:00 a.m.
  • EIA Petroleum Status Report, 10:30 a.m.
  • Charles Plosser, President of the Philadelphia Fed (non-voter), speaks, 12:30 p.m.
  • Beige Book, 2:00 p.m.


  • Jobless Claims, 8:30 a.m.
  • Retail Sales, 8:30 a.m.
  • Business Inventories, 10:00 a.m.
  • Treasury Budget, 2:00 p.m.


  • International Trade, 8:30 a.m.
  • Import and Export Prices, 8:30 a.m.
  • Consumer Sentiment (University of Michigan measure), 9:55 a.m.
  • Jeffrey Lacker, President of the Richmond Fed (voter), speaks, 12:45 p.m.
  • Charles Evans, President of the Chicago Fed (non-voter), speaks, 1:00 p.m.

There's a lot on the calendar this coming week, particularly many Federal Reserve speakers. But, since December is the most important month for retailers, the Retail Sales report, due out on Thursday, is the report in which I am most interested. This report is intertwined with the payroll report, which is discussed in Friday's column, "Payroll Gains Are in Low-Paying Jobs."  

How so? Even though the lack of wage gains may limit spending, we see job growth in certain sectors related to trade. Given the season, a large portion of the December jobs were created in retail, but, also, many jobs were added in the transportation and warehousing of retail merchandise. In fact, a quarter of the 200,000 jobs created last month were in courier services, as a result of online shopping and the delivery of those goods. My question is: Were those jobs created in expectation of higher sales or were they due to an actual increase in business and cold hard cash received at the register (or via the website)? We'll get the answer on Thursday, but in the meantime, let's look at some of the forces in play behind December sales.

Many retailers ran promotions during December, some of them were extensive and some resulted in retailers running out of promo items during the holiday shopping season. This resulted in a couple of things: First, the volume of items sold may be greater than the dollar amount of sales in Thursday's report. Second, would sales have been even higher if some stores had not run out of their promotional merchandise? Extensive discounting -- especially unplanned discounting -- can cut into retailers' profit margins. So take this report for what it is -- economic data -- and wait for the more detailed assessments of profit estimates from securities analysts for the health of particular retailers.

I would also caution against extrapolating this sales data to future sales trends. Why? Because consumers may be buying mostly discounted items, and they could have already sated their desire for that coveted toaster during the holiday sales events. Come February, there may be fewer toaster sales (and in June, for that matter), if consumers have met their quota of toaster purchases for the year. Even though consumers may be tightening their wallets, they may have allowed themselves to splurge on gifts for the holidays.

That said, there are reasons to be both circumspect and optimistic about retail sales in the near term. Wages are not growing, as I discussed in the aforementioned payroll column, and households have a low savings rate, of 3.5% per the Bureau of Economic Analysis (BEA). Historically, the savings rate has been in the 8%-to-10% range in previous decades. It would be hard for consumers to spend much more with such a low savings rate; in November, real disposable incomes registered a big, fat zero for household income growth from all sources, after taxes and inflation.

Now I'm going to confuse you. Those data I just presented might be wrong -- sort of. Another set of data, the Flow of Funds (FoF) report from the Federal Reserve, shows a savings rate of 7.4% and implies that consumers have more income than the BEA data report. The two series of data come from different measures: the BEA data is more of an income statement, and the FoF data are basically cash flow and balance sheet reports. Both use different methodologies, and both are subject to sampling error. Given that margin for error in the data, we have to allow for the fact that conventional wisdom might be too pessimistic.

In the vein that incomes may be higher than some estimates, remember that wages are not the only source of income for some households. Dividend income is growing, and S&P Indices reported last week that dividend increases reached $50.2 billion in 2011, up sharply from the $26.5 billion reported in 2010. In addition, S&P expects dividend payments to set a new record in 2012, according to The Wall Street Journal. Note that this income typically benefits higher-end consumers and retirees, as both groups tend to own more investment assets. The divergence between the results of lower- and middle- tier retailers vs. luxury chains could continue, and dividend income could be a part of that story.

Meanwhile, consumer confidence is edging higher, as data from The Conference Board's Consumer Confidence report show that the "expectations" component, which is more closely correlated to spending patterns than is the headline component, advanced to 76.4 from 66.4. It's still below levels associated with a robust economy, but other details in the report show encouraging signs. Still, this advance merely reverses declines from earlier in 2011, so this could represent a sustainable shift in attitudes or it might be just a rebound. But, if this improved confidence means that consumers have more of a mindset to spend, the more upbeat FoF report instead of the BEA data) could suggest that perhaps they will do so. We'll see if Thursday's Retail Sales report can shed more light on the subject.



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