"Petail sales unexpectedly fall," was the Reuters headline Thursday,announcing the US Commerce Department's latest report on the shoppingexploits of the American public last month. Other news agencies andmedia had more or less the same wording for one of the more importantitems of economic data on the monthly cycle.
But the economic importance of the da
Economists recognize the centrality of retail sales, becausethey know that private consumption comprises more than 70 percent oftotal US economic activity, as measured by GDP. But they do not accordretail sales any emotional - let alone spiritual - value; although,funnily enough, many of them do have strong emotions about employmentdata.
Second, although there are retail sales data every month,Christmas comes once a year - and that's in December, in case youdidn't know. Hence, retail sales data for December is not just anothermonth. Even for economists, it's special - because the "holidayseason," which actually stretches from Thanksgiving in late Novemberthrough the end of December, is critical for the retail sector,generating as much as half of total annual sales for some productgroups.
In light of the foregoing, the fact that retail sales fell inDecember is very bad news for economists and sad news for religiousshoppers. Obviously, it is further evidence that the economy is weakand that any talk of recovery is more wishful thinking than substance.But the fact that retail sales unexpectedly fell is a story in its ownright. It is sad news for economists and very bad news for religiousshoppers, with implications that stretch far beyond one month or evenone year.
Why was this fall "unexpected"? For starters, what does thatterm mean? It means that Reuters, or Bloomberg or whomever, did asurvey of several dozen economists and analysts who work for financialfirms such as banks, brokerages, fund managers, etc., and actuallyasked them: "What do you expect to be the change in retail sales inDecember?" The answers ranged from a small drop to a gain of as much as1.1%, with the average of all these answers presented as the "consensusexpectation."
Needless to say, the bloke who predicted a drop is feeling verygood today, while the guy at the other end of the scale is not thehappiest or most popular chap in his firm right now. But never mind,there are more data next week to "predict," and even retail sales willcome round again next month.
Why, though, was this fall unexpected by most of the people whoare paid handsomely to figure out what to expect? There are numerousanswers, among them the usual suspects of laziness, charlatanism, etc.But there are also more interesting features. For instance, in recentdays and as part of the run-up to the publication of this item of data,there have been many reports from specific companies about their salesin December - and most of these reports have been positive compared tolast year.
Were these reports wrong? Not at all. There was indeed anincrease in sales over last year - but that was not unexpected, thatwas a near-certainty, given the intensity of the atmosphere of gloomand fear that held sway in late 2008. The fall that was reported,versus the rise that had been expected, were with regard to November:in other words, a month-on-month (m-om), rather than year-on-year(y-o-y), change. M-o-m is much harder to predict, or even guess, thany-o-y.
But there is another pitfall, this one much more subtle. Allthese stories about the increase in sales over last year: what wastheir source? It was the companies whose stores made the sales -whether Sears, Best Buy, GAP or whomever. All the big chains,basically. Correction: all the big chains still around in December2009. Circuit City, for instance, didn't report its sales - because,having gone bust earlier in the year, it didn't have any.
This phenomenon is called "survivorship bias," and it'sincredibly important, especially in recessions or market slumps. If yousurvive, you pick up market share from those who didn't make it. Thisis true even within chains: All the big chains closed stores this year,so the dead stores didn't report December sales - thereby effectivelyensuring that the survivors would have improved sales over last year.Dead men tell no tales, and dead stores make no sales.
There is a still more fundamental reason why the m-o-m dropshould not have been unexpected; i.e., why the analysts should actuallyhave expected a fall. The data for consumer credit show a steady andintensifying trend: downward. The quantity of credit-card debt held bythe public is shrinking, which is almost unprecedented; it is, in fact,shrinking rapidly, which is totally unprecedented. Shopping withoutcredit is meaningless - and in many cases simply impossible.
In other words, the religion of shopping is withering, becauseformer believers are abandoning it in droves. Many others still visitthe temples but don't actually take part in the essential ritual ofbuying things. Indeed, many temples are in danger of closing. For tensof millions, Haiti is just a television story. Falling retails sales,aka less shopping, is not mere data and statistics: it is the end ofthe world as they know it.
landaup@netvision.net.il