By David Stanowski
28 September 2007
Retail Sales are a key component of the U.S. Economy. The Conventional Wisdom is that consumer spending accounts for 2/3 to 3/4 of our economic activity. A large percentage of what the consumer spends is counted as Retail Sales, by the Census Bureau. Their web site has monthly data beginning in 1953.
As you might expect, Retail Sales tend to go up month after month, if for no other reason than the population keeps increasing, and Americans never tire of buying things! When they run out of money, they just charge it!
Like all statistics, of this sort, calculated by the government, there are a lot of estimations involved, and a strong internal bias to produce annual numbers that always go higher, in order to convince the populace that the government is doing a good job of creating ever increasing prosperity!
The following graph displays this rosy picture of ever increasing prosperity, that we are all used to hearing about, during periodic updates. In fact, there was only one minor dip over the entire history! Retail Sales begin in 1953 at $171.0 Billion, and increase all the way up to $4,365 Billion, in 2006. In 53 years, Retail Sales have increased more than 25 to 1!!! This is the story that the government, most of the people on Wall Street, and most in the media have been telling us for years.
A more accurate picture of Retail Sales can be achieved by simply dividing the Retail Sales for each year by that year's population. This Per Capita Retail Sales data series will eliminate the upward pressure in the Retail Sales data that is produced just because of population growth.
Per Capita Retail Sales begin at $1,067.52, in 1953, and reach $14,579.23, in 2006. The plot of the entire period continues to show a strong long-term uptrend, however, Per Capita Retail Sales have only increased by a factor of 13.5 to 1.
The government even "admits" that their Retail Sales figures should actually be reduced "a little bit" due to the "small amount" of inflation that they inject into the system, to grease the wheels of the economy. When they do this, they utilize the very deceptive statistic, that they developed, for this purpose, called the CPI, to reduce these Retail Sales figures about 2-4% per year. What does this "small reduction" actually amount to?
The Per Capita Retail Sales, after adjustment by CPI, begin at 39.91, in 1953, and peak at 73.12, in 2004. This plot continues to show a long-term uptrend, however, Per Capita Retail Sales, after adjustment by the CPI, have only increased by a factor of 1.83 to 1!
To recap; the Nominal Retail Sales data, which are the official figures used by the government, show an increase from 1953 to 2006 of 25 to 1, but when they are adjusted for population growth, and CPI, to get a more accurate picture, the gain falls to 1.83 to 1! The government's official data doesn't look nearly as good when you see the whole picture.
But, what is the truth?
In my article, Inflation; the Big Lie, the point was made that we use Dollars as our standard unit to measure economic performance, but that presents a very serious problem, because the value of the U.S. Dollar has declined steadily over time.
Therefore, in order to get a sense of actual, or "real performance", we must find some way to factor out the decline in the value of the Dollar. There are many possible ways to do this, but rather than use an artificially contrived, and perpetually understated method, such as the CPI, I use the price of gold. This is not absolutely accurate, but a market price gives a much better approximation than a government statistic!
Dividing Per Capita Retail Sales, by the price of gold, at the end of each year, created the data series called "Real Per Capita Retail Sales", shown in the next graph.
This data shows the rise in Real Per Capita Retail Sales during the post-war boom from 1953 throughout the 1960's. Real Per Capita Retail Sales peaked, at the end of this era, in 1970, at 51.45 ounces of gold. From there, the hyper-inflationary 1970's pushed Real Per Capita Retail Sales down until it bottomed, in 1980, at only 6.77 ounces of gold!!
After that, Real Per Capita Retail Sales rose throughout the 1980's and 1990's, and then peaked, in 2001, just after the stock market top in 2000, at 45.06 ounces of gold. At that point, we entered a new hyper-inflationary period, and Real Per Capita Retail Sales have declined about 50% since then!
What does this data tell us?
The expansion of the 1980's and 1990's did indeed end near the stock market top, in 2000, and, regardless of the inflationary illusions created by the real estate bubble, or new highs on the DJIA; a recession (negative growth) began in 2001! As the financial crises, and job losses continue, more and more people should begin to see this!
Does the change in the price of gold, between 31 December 2001, and 31 December 2006 overstate the amount of inflation, and its effect on Per Capita Retail Sales? During that period the price of gold increased 128.67%, the price of oil increased 207.71%, and the CRB Index (a basket of commodities) increased 106.49%. Therefore, the Real Per Capita Retail Sales data series, created using the price of gold, should be a whole lot closer to the truth than adjusting Per Capita Retail Sales, using the government's CPI.
Most analysts don't adjust Retail Sales data for population or inflation. The typical analysis, done on this data series, is the Year-Over-Year Rate of Change, on the monthly data. The graph below shows that the RofC peaked at 17.45%, in February 2000, made a lower peak of 15.05%, in October 2001, and then dropped to -1.41% in October 2002.
Since then, RofC has remained positive, but below the downward sloping trendline, and less than 10%, with the RofC below 5% for the last 12 months. Like the previous studies, this technique says that Retail Sales peaked in 2000.
A close up of this same data, in the graph below, shows the secondary peak at 10%, in February 2004, and the declining RofC since then.
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