Chart of the day: Retail Sales

| 15 October 2008 11:00

Yesterday, I said that investors would begin to focus on the real economy now that the financial crisis has eased somewhat due to massive government intervention. Today, retail sales figures for September 2008 were released by the United States and they were much worse than expected. As a result, shares have dropped, with the S&P 500 down as much as 5%.

Reading the business press, one gets a very distorted view of reality though. Because journalists seem to focus on the meaningless month-to-month statistics at the exclusion of more meaningful data trends. For example, AP reports that retail sales fell 1.2%, the most since August 2005. How does that compare to last year? What do the figures look like on an inflation-adjusted basis? What is the trend? None of this is explained (see story here). This does us all a huge disservice.

I took a look at the retail sales data and adjusted it for inflation and compared it to the same period last year. Below is the chart.

As you can see from the data, real retail sales growth is deeply negative at -5.5% versus last September. And the trend is clearly down. However, retail sales data is very volatile from month-to-month. In September 2001, retail sales plunged 1.8% because of 9/11, only to rise 6.6% in October. Therefore, I have also charted a 3-month average sales growth chart which smooths out these month-to-month spikes. Here again, one can see that real retail sales are deeply negative and trending down.

Unlike in the last business cycle, where lowering interest rates to 1% kept consumers spending through an economic downturn, this time this is not likely to be the case.

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avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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