Shortly after its release this morning, Josh Boak at the Associated Press posted his coverage of the Census Bureau's August retail sales report. On a seasonally adjusted basis, August's sales came in a very mediocre 0.2 percent greater than July.
It's almost too kind to say that Boak's writeup was delusional. The AP reporter celebrated "surges" in spending, "fed ... by solid and steady job gains" that will "sustain U.S. economic growth." He missed an important clue, downplaying the significance of "a possible pullback in the housing sector's momentum" — not that there has been all that much momentum anyway.
Boak hung his hat on a metric he vaguely described (bolded in the excerpt below) which, in historical context, really shows how miserable things are:
AUTOS AND RESTAURANTS PUSH US RETAIL SALES HIGHER IN AUGUST
Americans stepped up their spending on cars, restaurant meals, groceries and clothing in August, suggesting that consumers will help sustain U.S. economic growth despite a broader global slowdown.
The Commerce Department said Tuesday that retail sales rose 0.2 percent last month, after advancing 0.7 percent in July. Sales have increased 2.2 percent over the past 12 months, as solid hiring has translated into surges in spending at auto dealers and dining establishments.
"There was more spending on 'wants' last month" such as eating out, sporting goods and electronics, said Jennifer Lee, a senior economist at BMO Capital Markets. "These are areas that suggest consumers are ready and willing to splurge a little on items outside of the basic necessities."
Retail sales have been fed this year by solid and steady job gains. The hiring - 2.9 million additional jobs over the past 12 months - has translated into a surge of spending at auto dealers and restaurants.
BMO's Lee and the AP's Boak are dreaming if they think that these "splurges" are meaningful harbingers of economic health.
In his reference to 2.2 percent, it's not clear whether Boak is referring to seasonally adjusted monthly sales, i.e., August 2015 compared to August 2014, or to all sales during the 12 months ended August 2015 compared to the 12 months ended August 2014. The language he used would lead one to think that he meant the latter, but it's more likely that he referred to the former, since that comparative 2.2 percent appears in the Census Bureau report.
Well, let's see how much of a "surge" that 2.2 percent represents compared to results seen in the past 5-1/2 years, during which anyone who has experienced it would agree that the economy has not performed in consistently stellar fashion:
During the past 67 months, on a seasonally adjusted basis, we've only seen seven year-over-year monthly sales increases below August 2015's 2.2 percent — and five of them occurred this year, which is clearly shaping up to be especially awful. August's 2.2 percent increase is below this year's average during the first seven months of 2.3 percent.
On a not seasonally adjusted basis, we've seen worse year-over-year monthly performances just six times in the past 67 months — and three of them occurred this year. August's 1.6 percent increase is well below the 2.2 percent average during this year's first seven months.
There may be a planet where a sales performance like August's could be described as a "surge" — but it's not planet Earth.
Boak did notice that retail performance in areas relevant to the housing industry didn't do well:
The retail sales report also indicated a possible pullback in the housing sector's momentum, as purchases at furnishers and building supply stores fell in August after gains over the past 12 months.
A friend of mine had an interesting insight into this which I believe will be detected by the so-called "experts" in the coming months. It goes like this:
- Millennials are living with their parents in record numbers. Because of cost, student loan burdens, and other factors, buying a house is the last thing on the radar for many if not most of them.
- Those who are in that situation but who also have jobs, even those which don't pay too well, feel somewhat falsely rich, and as a result are spending disproportionately in restaurants and bars, which explains why that sector has done relatively well.
- They also need cars, and are getting enticed into buying new vehicles by extraordinarily lax credit standards and six- to seven-year payment terms, a relatively new phenomenon. When they buy a car, the entire value of the vehicle is considered part of retail sales, even though the only amount buyers are really "spending" each month is the amount of the monthly payment on those loans.
So the two items the AP's Boak cited as "strengths" — spending in bars and restaurants and purchases of vehicles — are arguably indicators of weakness.
It's bad enough that the AP's economics writers so often engage in the "it's not so bad" game and try to convince us that Obamanomics' mediocre "new normal" is the best we have a right to expect. It's quite another, and quite offensive, when they try, as Josh Boak did today, to convince us that awful data is really strong. Sure, Josh — it's so "strong" that the Federal Reserve Bank of Atlanta's third quarter GDP growth estimate is now a tepid annualized 1.5 percent.
Cross-posted at BizzyBlog.com.
