Are Retail Sales Overstated?

Mish doesn't buy the recent retails sales figures (hat tip reader Mike Hardy):

The issue...

I don't buy it. If retail sales were back to within 4.3% of the pre-recession peak, sales tax collections would be back towards the pre-recession peak, if not exceeding the pre-recession peak.

Why might they exceed the peak? Because of numerous state sales tax hikes.

But...

In spite of numerous sales tax hikes, tax collections are still 5.9% lower than two years ago. Moreover, June of 2008 was not the pre-recession peak. November of 2007 was the pre-recession peak.

The conclusion?

Retail sales are down 10% or more from the pre-recession peak, especially if one factors in tax hikes.

Many states look at the Census report trying to figure out why their sales are lagging the national averages. The problem is the Census Bureau national averages are a blatant distortion of reality. The key to the states' conundrum is Census Bureau sampling methodology does not take into consideration stores that have gone out of business. Sales tax collections obviously do. Closed stores make no sales and collect no taxes.

In other words, same store sales are up because the overall number of stores has declined more than the level of overall sales (a smaller pie, but larger slices). The thought is the Census is then extrapolating those higher same stores figures to a base that is no longer there.

My sanity check on his hypothesis is to compare the decline in retail sales relative to business, manufacturer, and wholesale sales (under the assumption that retail stores have closed at a faster pace / are more numerous and harder to track than businesses, manufacturers, and wholesalers).



While there could be alternative reasons (i.e. price levels, type of sale, etc...), it will be worth following this to see if he may be on to something...


UPDATE:

It looks like my "smell test" may have holes. Mish reached out and noted retail sales peaked in November 2007. In looking at the data since that peak, a different trend can be seen:



In a nutshell, it appears retail sales slipped first, then sales of business, manufacturing, and wholesale followed (thinking these sales "react" to the end consumer). More recently, it looks like retail sales have rebounded first and again, have been followed by business, manufacturing, and wholesale.

So what may cause the discrepency between retails sales and tax collections? Back to Mish:

1. Sales Tax holidays
2. Online sales
3. Government purchases

Source: Census

Inventories Growing to Meet Final Demand

Reuters details:

U.S. business inventories rose slightly more than expected in February to their highest level in seven months as businesses restocked to meet strengthening domestic demand, a government report showed on Wednesday.

Department said inventories increased 0.5 percent, the largest increase since July 2008, to $1.33 trillion - the highest since July. January inventories were revised up 0.2 percent, after being previously reported as being flat. Economists polled by Reuters had expected a 0.4 percent rise in February inventories.

Inventories are a key component of gross domestic product changes over the business cycle and a sharp slowdown in the pace of inventory depletion is driving the economy's recovery that started in the second half of 2009.

The below chart shows business sales and production. Production accounts for the change in inventories by taking the sales and adding/subtracting the change in inventories over a given period (3 months in the chart below) to show growth in the amount actually produced to meet final sales.

It is interesting to note that while inventory levels jumped to an eight month high, the impact of inventory rebuild (or lack of depletion) on final GDP peaked in November at a 9.2% three month change and is now down to 2.0% (still quite strong) through the period ending February. As a result, impact of inventory on GDP will be MUCH smaller in Q1 than Q4 (for a full explantion go here).

Source: Census

Same Store Sales "Surge"

The Washington Post called this a "surge":

Retailers pulled off a better-than-expected holiday season as rising consumer confidence -- and a last-minute shopping spree -- pushed sales higher in December, according to results released Thursday.

For about three dozen of the country's biggest chains, sales at established stores increased an average of 2.8 percent in December from a year ago, according to the International Council of Shopping Centers (ICSC), a trade group. Sales for the last two months of the year jumped 1.8 percent, compared with a record 5.6 percent drop in 2008 -- marking the strongest holiday performance in three years. The ICSC had forecast a 1 percent increase.

And the resultant two year change (two years takes in account the massive drop from last year) shows the strength remains in a tween retailer and discount stores.



An improvement? Yes, but a 1.8% rise after a 5.6% drop doesn't qualify as a surge in my book.

Source: Retail Sails

Weak Back to School Sales

WSJ reports:

Retailers reported another month of weak same-store sales in August, as back-to-school results came in worse than expected.

Industrywide, same-store sales fell for a 12th straight month -- highlighting the woes retailers have been under as consumer spending continues to decline. But with leaner inventories, companies are hoping to avoid the markdowns of last year's holiday season as sales then were even weaker than expected.

August results were also hurt by the late Labor Day holiday, meaning some schools started sessions later than last year. Another likely impact was the strong rebound in August U.S. auto sales on the "Cash for Clunkers" program. It was seen as steering some consumers away from retailers to showrooms.

Still, the sales decline was smaller than July's, and comparisons will continue to get easier in the coming months. Weak prior-year results in part helped cushion the August decline --year-earlier same-store sales rose a scant 0.2%, according to Thomson Reuters. That was the last increase for the industry.

The only real strength appears to be from low-end (by price) teen / tween stores, boosted by back to school shopping. Higher end teen / tween stores (i.e. Abercrombie)... not so much.

July Same Store Sales

WSJ reports:

Consumers preferred government-sponsored incentives over retailers' continued reliance on big markdowns, helping to make July same-store-sales another washout.
Retailers weren't only competing with the continued problems of low consumer confidence and employment levels, but also had the government offering big incentives for auto and home purchases.

"That doesn't leave much left over for other purchases, especially big ones like large screen TV's," said Chris Donnelly, partner in Accenture's retail practice. The poor July showing is also building a case for extreme caution going into Christmas. Retailers are likely ordering less, which may not mean discounts will have to be as big this holiday season. But any uptick in demand won't be met with supply.

Is Target becoming too "high-end"?

Source: CNN

Japanese Retail Sales Down 10th Straight Month

Bloomberg reports:

Japan’s retail sales fell for a 10th month in June, extending the longest losing streak since 2003 as job losses and wage cuts forced households to trim spending.

Sales slid 3 percent from a year earlier, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg News predicted a 2.5 percent drop.

“The worst is over but that doesn’t completely wipe out households’ concerns,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. “Japan’s recovery will be weak until a pickup in jobs and wages boosts consumer spending.”

Department-store sales fell 8.8 percent in June, capping the worst half-year performance on record, the Japan Department Stores Association said last week. Sales at convenience stores declined for the first time in 14 months in June, the Japan Franchise Association said last week.

Source: Meti.GO

States are Broke

Bond Tangent reports (note that I've cut out some information - go to Bond Tangent for full post and bold mine):

• Total state tax collections for Q1 fell by more than 11.7% YOY (the largest decline in state since 1963)
• Local taxes, which rely primarily on property taxes that tend to be more stable, rose 3.9%.
• Income tax collections are now worse-off than sales taxes (the effect of a sharp rise in unemployment)
• Total collections declined in 45 states in Q1, versus 35 in Q4 of 2008. Twenty-five of those states experienced double-digit declines.
• Personal income tax declined 17.5% YOY; "preliminary figures for the second quarter of 2009 indicate that the personal income tax declines will be far more severe compared to the last recession when the largest decline was reported at 22.3 percent for the second quarter of 2002."
• Sales tax collections for Q1 represent a 8.3% decline YOY. In fact, the inflation-adjusted decline in state and local sales taxes was the greatest in the 45 years for which quarterly data are available."
• Nominal corporate tax revenues are down 18.8% YOY in Q1, which the authors note is the 7th consecutive decline.

In total, state tax revenues are down ~$20 billion in the first quarter from Q1 '08 levels.

Note the strength of sales tax in the last recession as compared to the current environment.

Source: Rockefeller Institute

Same Stores Sales Suck More Than Anticipated

WSJ reports:

Retailers posted yet another month of dropping same-store sales as June's figures came in below analysts' already dismal expectations amid bad weather and consumers' continued reluctance to spend.

Analysts have already said weather would likely hurt the sales results, since summer seasonal sales were far down because of cool temperatures and rain in the Northeast and mid-Atlantic regions. Several companies have said that was the case. Retailers also suffer from tough comparisons to last year, when consumers were still getting their government stimulus checks.

Where's Walmart you ask?

The industry's results were only the second without Wal-Mart Stores Inc. (WMT) in 30 years. The world's largest retailer said in May it would stop giving monthly sales data, following the lead of other smaller peers in recent years.

Retail Sales: Discount and Teen = Good

Bloomberg details:

The Easter holiday, aggressive marketing and deep discounts during April drove more traffic into stores, boosting sales, according to Richard Jaffe, an analyst at Stifel, Nicolaus & Co. in New York. The trend could continue this month, Jaffe said.

“With the second half of 2008 so difficult, we believe that retailers took draconian steps to better position themselves for a challenging and uncertain 2009,” he wrote in a May 4 note.

Higher end stores... not so much.

Business Sales and Inventories (December)

LA Times reports:

Inventories at U.S. businesses fell more than forecast in December and the most since 2001 as companies responded to slumping sales that reflect a deepening recession.

The 1.3 percent drop in the value of unsold goods at factories, retailers and wholesalers followed a revised 1.1 percent decline in the prior month, the Commerce Department said today in Washington. Sales fell 3.2 percent after a 5.7 percent decline in November.

So while inventories are shrinking at a rapid pace, sales are falling even faster.

Looking over a longer time frame (year over year, rather than month over month) we see sales that have plummeted and inventories at almost exactly the same level. Awfully bearish for expectations of production growth going forward.



Source: Census

Same Store Sales (January)

Missed this last week. CNN Money reported:

Most U.S. retailers, including Gap Inc., Target Corp. and Macy's Inc., reported weak January same-store sales Thursday as soaring unemployment and the deepest recession in three decades led consumers to retrench even as Walmart Stores Inc. bounced back with a gain for the month.

So to increase market share in this environment, all you have to do is be Walmart or take advantage of teens that can no longer afford Abercrombie and Fitch which is refusing to discount merchandise:

"We really feel that parents and teens are voting with their dollars," Chen said. "Competitively, at full retail price points, Abercrombie is too expensive. If Abercrombie chooses not to promote, that could continue to help the other retailers."

Is this a new data point to look out for? When / if Abercrombie discounts will that be the contrarian sign we've finally hit bottom?

Same Stores Sales... Down, but Not Out

According to CNN Money:

Despite a startling miss by Wal-Mart Stores Inc. (WMT), overall December same-store sales are tracking ahead of analysts' projections. Virtually all retailers have posted sales drops from a year ago, but for almost two-thirds of them the decline wasn't as much as expected, according to data tracker Retail Metrics.

Retail Sales November: Hey, You Gotta Eat! Edition

Source: Census

Holiday Shopping Slump

Interesting holiday shopping analysis from American Research Group:

Shoppers around the country say they are planning to spend an average of $431 for gifts this holiday season, down from $859 last year according to the twenty-third annual survey on holiday spending from the American Research Group, Inc. The overall average planned spending is down almost 50% from 2007 and it is the lowest level of planned spending recorded by the American Research Group since 1991.

Source: American Research Group via Calculated Risk

Same Store Sales (October)

Per CNN:

U.S. retailers, already struggling with a protracted sales slump this year, suffered another disastrous sales month in October as Americans continue to shun unnecessary purchases in tough economic times.

The sales reported Thursday were the worst in at least eight years, since Thomson Reuters - which tracks monthly sales for 34 of the nation's largest retailers including Wal-Mart, Gap, Sears, and J.C. Penney - began tracking the results in 2000.

Global Growth Screeches to a Halt

"Recession or Depression?" asks The Financial Ninja:

“Volvo said it received 115 order bookings for heavy trucks in Europe in the quarter, down from 41,970 trucks a year earlier.”

Click for massive chart in order to see Q3 08 units.


UPDATE:

From comments Sprizouse states...

The rest of the article DOES matter. Volvo cut the numbers when realigning their internal books for global heavy truck orders. Once the books were cleaned it was still shocking to see heavy truck orders, in total, down 55%... but not the ridiculous amount on the chart or the amount Bloomberg's claiming.

I'll agree with Sprizouse that there is more to the story. From Volvo's earnings call we learn from Leif Johansson, CEO, all the details of these lousy numbers:

The order intake actually netted --looks like we had a 100% fall and that of course netted and in reality we had 20,000 new orders come in, in the European business. And 20,000 new orders were then offset by around 20,000 cancellations. What happened there was that, the order book then, many of our customers decided to cancel their orders or push forward orders, even sometime in the real near-term, or you can say within the quarter.

So, it wasn't 115 total orders, but ~20,000 orders less ~20,000 - 115 cancellations. My new questions... why was Volvo booking the sales in previous quarters if they could be cancelled AND why won't customers cancel these 20,000 new orders as the global economy has gotten significantly worse?

Source: Bloomberg

Discount Shopping Thrives; Luxury... Not so Much

Retail Sales Plummet... What Stimulus Checks?

As previously detailed, stimulus checks continue to disappoint:

U.S. retail sales dropped 0.1% in July, as falling auto sales offset an increase in gasoline sales sparked by higher prices, the Commerce Department estimated Wednesday.

Excluding the 2.4% decline in vehicle sales, seasonally adjusted retail sales rose 0.4% in July, the smallest gain since February. Excluding the 0.8% rise in gasoline sales, retail sales fell 0.2%. "The consumer is running out of steam," wrote Nigel Gault, chief U.S. economist for Global Insight.

Auto Sales - July

Petroleum Wholesale Analysis