Associated Press reporter Martin Crutsinger reported this morning that retail sales in December came in better than expected:
Retail sales rose in December at the strongest pace in five months, indicating that the all-important holiday shopping season turned out better than original reports indicated.
The Commerce Department said Friday that retail sales increased 0.9 percent last month, the strongest showing since a 1.4 percent increase in July.
The increase was better than the 0.7 percent advance that economists had forecast and provided evidence that consumer spending was ending the year on a firmer footing than initially thought.
The government report presented a firmer tone to spending than initial reports from the nation's big chain retail stores. They complained that holiday sales had fallen below expectations as mild winter weather depressed sales of winter clothing.
Crutsinger then downplayed the year's strong retail results, and used it as an opportunity to get in a few licks about how supposedly tough the economy of 2006 was:
For all of 2006, retail sales rose by 6 percent, a solid showing but down from a 6.9 percent increase in 2005.
That slowdown reflected the fact that consumer spending, after a sizzling start to the year, slowed in the spring and remained at lower levels for the rest of the year as Americans were battered by soaring gasoline prices, rising interest rates and a cooling housing market.
Mr. Crutsinger portrayal of the full-year result as a "slowdown," which formed the linchpin of the rest of that sentence's negativity, overlooked one "minor" detail: Reported retail sales figures include inflation.
Final Consumer Price Index (CPI) figures for December aren't available, but that's really no excuse, as you will see from this chart (to replicate, go to this link and select the very first report for display):
2005's CPI-U inflation was 3.5% (196.8 divided by 190.3). The real (after inflation) increase in retail sales was 3.4% (6.9% less 3.5%).
Through 11 months of 2006, inflation was 2.4% (201.5 divided by 196.8). Unless December's reported inflation is greater than 0.2%, which would cause full-year inflation to be greater than 2.6%, 2006's real increase in retail sales will be 3.4% or greater (6.0% less 2.6%) -- i.e., equal to or better than 2005's. Even if CPI comes in slightly higher, the difference will be very small, and nowhere near the 0.9% decline Crutsinger reported to his readers (6.0% in 2005 less 6.9% in 2006) by ignoring inflation.
"Slowing," schmowing. "Battered," schmattered.
Cross-posted at BizzyBlog.com.