Economic First Look: Reviewing Small Business and Retail Sales Data

 | Oct 08, 2011 | 9:00 AM EDT
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Stock quotes in this article:







  • Columbus Day: Bond Markets and Banks Closed, Stock Markets Open


  • NFIB Small Business Optimism Index, 7:30 a.m.
  • FOMC Minutes, 2:00 p.m.


  • Charles Plosser, President of the Philadelphia Fed (voter), speaks, 1:30 p.m.
  • Sandra Pianalto, President of the Cleveland Fed (non-voter), speaks, 2:15 p.m.


  • International Trade, 8:30 a.m.
  • Jobless Claims, 8:30 a.m.
  • EIA Petroleum Status Report, 11:00 a.m.
  • Treasury Budget, 2:00 p.m.
  • Narayana Kocherlakota, President of the Minneapolis Fed (voter), speaks, 2:30 p.m.


  • Retail Sales, 8:30 a.m.
  • Import and Export Prices, 8:30 a.m.
  • Consumer Sentiment (University of Michigan), 9:55 a.m.
  • Business Inventories, 10:00 a.m.

What people say and what people do are often two very different things. Small businesses and retail sales share a similar irony in that both small business owners and consumers are reporting a great deal of pessimism, but right now, their actual behavior might not exemplify their feelings. Either that or some of the data are just plain wrong.

First, small businesses report a monthly sentiment gauge, which is a great barometer of the health of a segment of the economy that employs a significant number of Americans. Small businesses play an important role in capital equipment and construction spending, and, thus, are important economically, even though almost none of them is publicly traded.

Small business owners have not been happy. On Tuesday, we'll discover just how unhappy they are when the National Federation of Independent Businesses (NFIB) Optimism Index data are released. However, quite a large divergence exists between the hiring intentions of small businesses and what the ADP job figures show. Case in point: Here is an excerpt from a post on jobs on the NFIB website from this past week.

"For the fourth month in a row, small-business owners reported an overall reduction in employment, posting an average reduction of 0.3 workers per firm. Seasonally adjusted, 10 percent of the owners added an average of 3.2 workers per firm over the past few months, but those increases are dissolved by the 15 percent who reduced employment by an average of 2.9 workers per firm. The remaining 75 percent of owners made no net change in employment."

ADP states something different. According to the ADP Employment report, also released this past week, small businesses added 60,000 jobs last month vs. 36,000 for mid-sized business, while large businesses lost 5,000 jobs. According to ADP, small businesses added jobs each month for the past five months.

Both the NFIB sentiment survey and the ADP report cannot be right -- can they? The survey shows job losses, but the report from an actual payroll processor shows job gains for small businesses. The bottom line is that NFIB's data, such as what will be released on Tuesday, is a survey and, thus, not "hard" data. The ADP report is made up of actual numbers, such as sales, jobs, production, etc.

The same case exists between the Retail Sales and the Consumer Sentiment (University of Michigan) data, both due out on Friday. Consumer confidence, whether from the U of M data or the Conference Board's separate measure, has been bouncing around the lows seen during the recession and is at, or near, the lowest level since 1980.

You'd never know this by looking at chain store sales last week. Retailers posted rather decent same-store sales in September, up 5.1% from a year ago; this was the best showing since May, noted Barron's. Of the 23 retailers that reported numbers, 12 beat analysts' estimates, according to Thomson Reuters (TRI).

Of course, this is where this week's retail sales report is crucial. Last week's chain store sales data are not much of an economic indicator, in my opinion, as they are in regard to isolated sales of particular retailers. First, Wal-Mart (WMT), the largest retailer, does not report monthly figures with other retailers and it often caters to a lower-income (and sometimes rather financially stressed) consumer. Therefore, we would need to consider its sales when we look at sales of Saks (SKS), for example, which caters to well-off consumers and increased its sales 9.3% vs. a year ago.

The chain store sales metric does not measure stores that have opened, or closed, in the past year. Also, sales can be influenced by promotional events or the availability – or lack thereof -- of merchandise and fashion items. The retailers covered tend to be larger outfits with a presence in shopping malls. What we don't know from looking at the chain store sales report is whether someone buys a toaster at a big chain store instead of a mom-and-pop store, which doesn't report monthly figures. As such, we need to consider whether one retailer's gain is another's loss, and the chain store sales report does not cover the many retailers that are not part of a national chain.

Friday's retail sales data will be comprehensive, covering retailers of all sizes. In this report, we will discover whether more toasters were bought across the economy rather than one particular toaster bought at one specific retailer. As such, retail sales from Census is an economic report, and the chain store sales is a retail report. Both are useful -- the former to an economist, and the latter to a retail analyst.

As such, I will analyze Friday's data release in detail, but last week's data on retailers, not so much. Friday's report will show whether the large drop in consumer confidence is actually affecting the economy-wide, retail sales.


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