Friday, June 11, 2010

Retail Sales Fell in May by -1.6%, Helped by -7% Drop in Gas Prices; 7th Straight Pos. Annual Gain

Gas prices fall in May by 7%
Retail gas prices fell in May by -7% (see top chart above, data here), leading to a -3.3% decline in consumer spending at gasoline stations in May.  The -8% decline in gas prices from $2.94 in early May to $2.73 per gallon at the end of the month was the largest monthly decline in gas prices since a -20% drop in December 2008.  The -7% drop in gas prices and corresponding savings at the pump for consumers was part of the reason for the -1.6% decline in retail sales in May, compared to April, based on data in today's release from the Commerce Department.

On an annual basis, consumer spending was up by 6.9% in May, marking the seventh straight month of positive annual increases starting in November of last year, following 14 straight months of year-to-year declines from September 2008 to October 2009 (see middle chart above).  As both the middle chart (annual percent change in sales) and bottom chart (retail sales in dollars) indicate, there is a lot of "noise" or monthly variations in retail sales, so the -1.6% drop in May should be considered with that in mind, especially given the largest monthly decrease in gas prices in 17 months. 

But here's how it's getting reported by AP in a story titled "Unexpected decline in retail sales fans recovery fears": "Retail sales plunged in May by the largest amount in eight months as consumers slashed spending on everything from cars to clothing. The big drop raises new worries about the durability [and strength] of the economic recovery." 

The AP report does briefly mention gas prices: "Gasoline stations sales were down 3.3 percent, a drop that reflected in part lower gasoline pump prices during the month."  But they fail to mention that it was the largest monthly decline in gas prices since 2008, and that lower gas prices and lower spending at gas stations is a POSITIVE factor for consumers, not NEGATIVE. 

Finally, auto sales increased by 3.74% in May according to the BEA (data here), at least in terms of unit sales, so it's interesting that the Census retail sales report is showing a -1.7% decline in May spending on motor vehicles (of course, it could be higher unit sales for lower priced cars?).

Update: Now an even more recent AP story this morning reports that "Consumer sentiment strongest since January 2008." 

In my opinion, any "worries about the durability and strength of the economy recovery" might make a good headline or news story, but are unwarranted and unsupported by the data.  

New Update from First Trust: "It’s important to focus on “core” retail sales, which excludes autos, building materials, and gas. These sales increased 0.1% in May. That’s right, increased, bringing the total gain over the past year to 4.5% and with May an annualized 3.1% above the first quarter average."


At 6/11/2010 9:17 AM, Anonymous Anonymous said...

Same old story every time. Gas prices get too high, and the economy starts sputtering. Gas prices fall, and the economy starts to catch hold.

Consumer Sentiment is up pretty strongly this month. Folks feel better (and, spend more,) when they're not getting beat up at the pump.

At 6/11/2010 9:37 AM, Anonymous morganovich said...

your argument seem inconsistent here mark.

sure, gasoline prices dropped sequentially, but they are still way up YOY as gasoline was 2.18 at the beginning of last may.

so, to claim it's gasoline causing a sequential drop, but then not mentioning that it's up over 20% yoy when you talk about YOY growth still being strong is awfully selective use of data.

either take gasoline out (which i prefer) or leave it in, but you need to be consistent.

you can't use it when it supports you and take it out when it doesn't.

At 6/11/2010 10:24 AM, Anonymous morganovich said...


sure, lower spending at gas stations can be seen as a positive, but that's an overly simplistic interpretation.

lower spending at restaurants due to lower prices is good for consumers too. but it's not good for GDP, just as lower gas prices aren't.

if so much money was saved and this is a good sign, it certainly wasn't spent anywhere else in an offsetting amount as the whole number was down.

why is a drop in gasoline spending any different than a drop in grocery spending in terms of overall effect. both reduce GDP, both theoretically free up money to be spent, but neither drives growth unless the money is spent somewhere else which did not show up in the may number.

finally, a decline in the price of oil is generally a sign of a decline in economic output. sure, the world economy is becoming less energy dependent per unit of GDP, but nothing has changed since may that would drive a drop from $85 to $70/bbl.

that's a response to economic activity.

At 6/11/2010 10:28 AM, Anonymous morganovich said...

oh, and lastly, before someone raises the "people are saving more" argument, i'm not saying that that is a bad thing. we need to save more and de-lever to repair the personal balance sheets of the US consumer.

this will decrease spending (and thus growth) in the near term though. it's a necessary (if potentially painful) adjustment.

At 6/11/2010 10:58 AM, Anonymous morganovich said...

"New Update from First Trust: "It’s important to focus on “core” retail sales, which excludes autos, building materials, and gas. These sales increased 0.1% in May. That’s right, increased, bringing the total gain over the past year to 4.5% and with May an annualized 3.1% above the first quarter average."

that's no "core" retail sales i ever heard of. that's "let's take stuff out until we get the result we want". want to bet they included building materials in their numbers in 2006-7?

core is generally taken to exclude gas stations and sometimes grocery.

taking gas stations and grocery out of the may number still leaves a 0.9-1.2% contraction depending on whose series you use.

those first trust guys are really reaching to try to make a bad number look good.

At 6/11/2010 11:08 AM, Anonymous Anonymous said...

Seems kind of odd that gas prices would drop as the first of the holiday driving season starts.

At 6/11/2010 11:35 AM, Blogger sethstorm said...

Any word on car usage/reposession statistics? That might have some relation to the fuel price. I'd not be surprised to see some overlap.

At 6/11/2010 11:52 AM, Anonymous gettingrational said...

I consider consumption, which includes retail sales (duh), to be a much larger percentage then is healthy for the economy. It is estimated to be between 67 and 72% of GDP. Thus, I consider a drop in retail sales to be somewhat healthy for a sustainable recovery.

I know the above is a contrarion view BUT I think one economist this morning is correctly analyzing the retail sales data. This notable guy is the only one writing a comprehensive analysis of retail at SeekingAlpha!

At 6/11/2010 12:47 PM, Blogger PeakTrader said...

Thank God for the Obama V-shaped recovery. Now, we know what to do in the next recession:

A. Pay people with their own money to destroy their assets, e.g. Cash-for-Clunkers.

B. Construct a $787 billion stimulus bill to where there are $1.4 trillion annual budget deficits.

C. Cut taxes in a way that no one knows they got a tax cut and raise taxes in a way that no one knows they got a tax hike.

D. Pretend to regulate and when a mining or oil spill disaster takes place pretend you're doing something effective and then blame the ineffectiveness on someone else.

E. Ridicule "Fat Cats" for making too much money. Attack industries with "deep pockets," e.g. health care, finance, oil, etc.

F. Spend the American people's money so fast they won't know what hit them till it's too late, and spend it on your costly "pet projects" you learned as a community organizer this country needs.

At 6/11/2010 12:58 PM, Blogger Mark J. Perry said...

Note: If you take out gasoline sales, the May 2009-May 2010 increase was +5.65% (vs. 6.9% without), and the April-May decrease was -0.97% (vs. -1.20% without). So the year-over-year gain is still positive and healthy (showing expansion), and the April-May decline is much better than reported (by 23 basis points).

At 6/11/2010 1:04 PM, Blogger PeakTrader said...

G. Help the irresponsible homeowners, but not the responsible homeowners, including those without a mortgage.

At 6/11/2010 1:17 PM, Anonymous Lev said...

So every market is efficient except the stock market which apparently hasn't figured out that happy days are here again.

We should direct all the market participants to CD so my 401(k) will jump up.

Next time we're in a traffic jam, we'll have some government official tell everyone, "When I fire this starting pistol, everyone step on their gas pedal. It will solve everything."

Get ready.... Set..... Spend!

At 6/11/2010 1:30 PM, Anonymous morganovich said...

"Note: If you take out gasoline sales, the May 2009-May 2010 increase was +5.65% (vs. 6.9% without), and the April-May decrease was -0.97% (vs. -1.20% without)"

sure, the yoy comp is still positive, but but may last year was still a VERY easy comp as may 2009 was barely off the lows, and the may number is down from april sequentially and shows lower YOY growth compared to april as well. again, my point was that you can't treat the YOY and the SEQ differently.

on a real basis, the numbers are even worse, and even more so if population adjusted.

GDP growth is slowing, retail sales just went negative, employment numbers are stubbornly bad.

i'm concerned that there is nothing that you would deem to falsify your "v" shaped recovery hypothesis.

what would? what data would cause you to change your mind?

At 6/11/2010 1:30 PM, Anonymous Anonymous said...

From someone that is in the construction trades, the idea of excluding the drop in building materials is overlooking the elephant in the room. Housing got us in this mess. When the federal government decided home ownership was the holy grail, everything bad that could happen did happen. Housing starts are still off the 50 year average by 60%. Almost 3 years after the collapse. Don't tell me construction spending doesn't matter. Overlooking this segment reminds me of "...other than that Mrs. Lincoln, how was the play?"...

At 6/11/2010 1:53 PM, Anonymous Anonymous said...

Our monetary system is not to be trusted. This includes governmental and wall street market manipulation. The people running the US monetary system and the politicians they own serve each other, not the citizenry. They really could care less how bad things get for everyone else, as long as they can socialize losses and profit short-term. They are very good at this and are getting even better at it. After all, they now have an exemplary 37-year record of shaping the system to their profit. Today, nearly every single economic transaction in US society brings them profit, either directly or through governmental (taxpayer) means.

At 6/11/2010 5:55 PM, Blogger PeakTrader said...

Rather than putting lipstick on this pig, let's keep in mind when you lose 50% and then gain 50%, you're still down 25%.

"Growth (real) would have to be about 5 percent for a full year just to drive the unemployment rate down 1 percentage point."

At 6/11/2010 7:56 PM, Anonymous doubleBubble tripleDip said...

Michael said...

Seems kind of odd that gas prices would drop as the first of the holiday driving season starts.

Would that be a clue that more people are racking up more in-flight miles? Airline stocks have been up during past month. Flying more but driving less?


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