A good time to look at seasonality and inflation/deflation in retail sales, especially as prices of goods have dropped.
ByWolf RichterforWOLF STREET.
January and February are the worst months of the year for retail sales overall. December is the best month of the year. In December, people go on the final stretch of the holiday buying binge. In January, gift-buying is over, and retailers get the returns (negative sales). In January, retail sales plunge from December. For department stores, sales in January collapse by nearly 50% from December, and this happens every year. Other retailers see less of a drop. Overall retail sales have historically plunged by 15% to 22% in January from December.
In January 2024, retail sales plunged by 16.6% from December. That was a bigger plunge than in January 2023 (-15.2%), but a smaller plunge than in January 2022 (-16.9%), and quite a bit smaller than in the years before the pandemic (between -18% and -22%).All annual low points in the chart are Januarys:
It happens every year, so massive seasonal adjustments try to iron it out.
In terms of economic reporting, retail sales are massively down-adjusted in December, with the result that seasonally adjusted retail sales in December (red in the chart below) are a lot lower than not seasonally adjusted retail sales, which spike to their annual high in December (blue). Conversely, in January, seasonally adjusted retail sales are massively up-adjusted.
And if nothing out of the 5-year average happens – no worse than an average winter storm, for example – the seasonal adjustments smoothen out December and January. If a worse than 5-year average winter storm blankets a bigger-than-average part of the country, and more than average people stay at home instead of buying stuff, then the seasonal adjustments are off.
Not seasonally adjusted, retail sales in January plunged by 16.6% from December, to $642 billion ( = actual retail sales), but they were up by 2.0% year-over-year.
Seasonally adjusted, retail sales dropped by 0.8% from December, to $700 billion ( = $642 billion in actual sales + $58 billion in seasonal adjustments). That seasonally adjusted total was up by 0.6% from the seasonally adjusted total in January 2023.
The two biggest retailer categories are New & Used Vehicles Dealers and Parts stores with $119 billion in actual sales in January, and Nonstore Retailers (mostly ecommerce) with $115 billion in January. Together they accounted for 36.5% of total retail sales. But their seasonal patterns are different.
For auto dealers, the best month of the year is typically in the spring, March, April, or May. Decembers are a middle-of-the-road month. And Januarys are the worst.
Not seasonally adjusted, sales at auto dealers and parts stores rose by 1.3% in January year-over-year.
But price declines have hit dollar-sales: The CPI for new and used vehicles in January dropped by 1.1% from December, and was down by 1.6% from a year ago, on a plunge in used-vehicle prices and flat new-vehicle prices, and we’ll get to that in a moment.
For nonstore retailers (mostly ecommerce), the best month by far is December, and January or February is usually the worst. Ecommerce has also experienced price declines across many of the goods categories sold at these retailers:
Deflation in goods that retailers sell.
Retailers sell goods, not services, and inflation in the US has shifted from goods to services in 2022, and many goods prices have been falling and continued to fall in January, as the latest CPI data this week showed.
Prices of durable goods have been falling since 2022. In January, the CPI for durable goods fell by 0.5% from December and was down by 1.6% from a year ago. This includes motor vehicles, appliances, electronics, furniture, etc.
Declining prices reduce dollar-sales, just like rising prices increase dollar sales. But adjustments for inflation compensate for those price changes. So adjustments for this deflation in these categories push up the inflation-adjusted retail sales in these categories.
Prices of nondurable goods have also been falling. The CPI for nondurable goods fell 0.5% in January from December and was up less than 1% year-over-year.
Nondurable goods are dominated by food and energy, but also include apparel, supplies, etc.:
- CPI for food bought at stores: +0.4% month-to-month, +1.2% year-over-year.
- CPI for gasoline: -3.3% month-to-month, -4.6% year-over-year.
- CPI for apparel: -0.7% month-to-month, +0.1% year-over-year.
Do these retail sales show that consumers “cut back?”
Consumers always cut back in January from December, as we have seen above. Retail sales are highly seasonal, and it sucks to be a retailer in January.
But the question is this: does this data show a weaking in “real” (inflation adjusted) consumer spending on goods?
Consumers have shifted their spending to services starting in 2022, with revenge travel being a big thing, still. But spending on services is not part of retail sales here.
And growth in spending on goods, adjusted for inflation, started slowing in 2022 from the pandemic free-money binge, and sometimes turned negative from the spending binge during the pandemic, but has held up surprisingly well, even in durable goods against all expectations. And “real” spending on goods is still running far above prepandemic trend, which was one of the factors why GDP was surprisingly strong in 2023.
Everyone has long been waiting for consumers to slow their spending binge. This was one of the big hopes in order to bring inflation down.
But today’s data on retail sales doesn’t show that. It shows that retail sales, not seasonally adjusted, were up 2.0% year-over-year, and with inflation adjustments, were up by more, somewhere in the 3% range year-over-year. And this is happening despite the shift of spending to services, which should have produced a decline in spending on goods already in 2022 and 2023 but didn’t. So for now, in light of today’s retail sales, I’m not worried about our drunken sailors just yet.
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