Here's The Truth Behind Today's Strong Retail Spending Report

The October 2010 Advance Monthly Sales for Retail Trade and Food Services was released this morning. The seasonally adjusted tally of $373.1 billion, an increase of 1.2 per cent (±0.5%) from the previous month, and 7.3 per cent (±0.7%) above October 2009. Also, August headline number was upwardly revised from 0.71% to 0.87% and September from 0.62% to 0.71%.

The chart below shows the complete data series from 1992, when the US Census Bureau began tracking the data. I’ve highlighted recessions and the approximate range of two major economic episodes that have impacted consumer attitudes. The Tech Crash that began in the spring of 2000 had little impact on consumption. The Financial Crisis of 2008 has had a major impact.

retail

Photo: Doug Short

Here is the same chart with two trendlines added. These are linear regressions computed with the Excel Growth function.

retail

Photo: Doug Short

The green trendline is a regression through the entire data series. The latest sales figure is 7.9% below the green line end point.

The blue line is a regression through the end of 2007 and extrapolated to the present. Thus, the blue line excludes the impact of the Financial Crisis. The latest sales figure is 16.9% below the blue line end point.

We normally evaluate monthly data on a month-over-month or year-over-year basis. The October 1.2% increase over September and 7.3% over October 2009 look quite encouraging. But a snapshot of the larger historical context illustrates the devastating impact of the Financial Crisis on the US economy.

Here is a version of the chart with a logarithmic vertical axis and exponential regression trendlines. The trendlines bisect the data as in the linear version, but the linear regressions on a log y-axis are straight lines rather than curved.

retail

Photo: Doug Short

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This post previously appeared at DShort.com >

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