The stock market promoting mainstream media this morning reported “U.S. Retail Sales Rose Record 18% in May” (e.g. the Wall St Journal). The S&P futures jumped from up 45 points to up 90 points.
But, as usual, the details are in the fine print of the report itself, and it’s apparent that nobody in the financial media bothered to look beyond the headlines.
In fact, the 18% rise is measured from April’s report, which was heavily depressed due to the shelter-in-place restrictions and the closure of many retail businesses. Funny thing about using the percentage change as the metric of measurement. If April had one dollar of retail sales and May had two dollars, the percentage gain would have been 100%.
Measured from May 2019, the “seasonally adjusted” numbers show that May 2020 retail sales dropped 6.1%. In retail sales terms, especially given the healthy rate of inflation built into the numbers, that’s a cliff-dive. If the numbers had been adjusted for price inflation, the percentage decline would have been even larger. Here’s the report if you want to check for yourself – Retail Sales.
Then there’s the credibility of the data collection, which is done by the notoriously unreliable Census Bureau. The Census Bureau would have us believe that sales at restaurants (“food services and drinking places” if you bother to look at the report) gained 29% from April to May. I find this impossible to believe given that most of the country, including many restaurants, were still shut down until late May. The gross negligence in this particular number is likely attributable to the highly opaque “seasonal adjustments.”
Same for auto sales, which the CB would have us believe increased 50% in May from April. Certainly the 23.6% drop in the Cass Freight index belies the numbers from the Census Bureau, especially for autos. I play tennis with someone who owns a trucking business that transports new vehicles from OEMs to dealers. His business completely stopped until late May. John Williams, of Shadowstats.com, believes the May number for auto sales will be reversed in June’s report.
Keep in mind as the various economic reports for May and June hit the tape, the percentage change from April to May and from May to June will make it appear as if economic activity is bouncing back strongly. In truth, with the economy re-opening, the May and June numbers will be calculated on a percentage basis from the severely depressed level in April and an inordinately depressed level in May, while the nominal numbers will be considerably lower compared to the same month in 2019.
In fact, it’s going to take at least a few months before the real fall-out from the closure of the economy is known. As an example, commercial real estate company Cushman & Wakefield has forecast that as many as 25,000 stores will close in 2020 – mostly in malls. This not only affects directly the employees who work at those stores, but also the surrounding businesses that benefit from store employees who spend money while at work (food establishments, etc.)
Without question the economy is not even remotely close to being in the “V” recovery that is implied by the action in the stock market. The immediate economic impact of high unemployment is deferred somewhat by Government “stimulus” payments and unemployment benefits. Many of those unemployed can still pay some bills and feed their families while stimulus payments continue and unemployment benefits are not exhausted. But once those pools of assistance are tapped out, the economic impact will be severe.