ESA makes its initial foray into the blogosphere today! Mark Doms, Chief Economist of the U.S. Department of Commerce, will be discussing the major economic releases. Dr. Doms will highlight the headline numbers and help put into perspective the underlying data trends.

Releases and issues discussed will include gross domestic product and corporate profits, international trade in goods and services, retail sales, new residential construction (housing starts and permits) and the employment situation.

 The bottom line is that consumer spending picked up at the end of the year. Making this determination is mucho difficult, if not impossible, if we were to solely rely on the large volume of private sector data that was recently released covering holiday sales, Cyber Monday, Black Friday, Re-gift Thursday, … . Instead, there are several notable attributes of the Census Bureau’s “Advance Monthly Sales and Food Services” release when trying to ascertain what is happening to consumer spending. First, the Census estimates are based on a large, scientifically drawn sample from all retail sect ors (most of the stuff you read about holiday sales is based on smaller slices of all retail sales). Second, Census seasonally adjusts its data so we can say something intelligent about month-to-month and quarter-to-quarter trends, not just year-over-year comparisons. 

 Below is some information about today’s Census data followed by some more detailed information on how some private sector estimates of holiday sales compare to the Census data.  

Today’s retail sales report adds to the evidence that consumer spending contributed importantly to overall growth in the fourth quarter of 2010.

~Mark Doms, Chief Economist, U.S. Department of Commerce
January 14, 2011

Sales in December and in Q4

Retail sales increased 0.6 percent in December, somewhat less than private sector expectations of a 0.8 percent advance. Sales in November were unrevised at 0.8 percent.

This change was driven in part by a 1.1 percent increase in the sales of motor vehicle and parts dealers. December sales, excluding motor vehicles, rose 0.5 percent, again slightly less than private sector estimates of a 0.7 percent increase.

Retail sales, which are an indicator of consumer spending for goods, jumped 14.0 percent at an annual rate in the fourth quarter (October to December) above their third-quarter average, the strongest quarterly gain since late 2001 (Figure 1).

The fourth-quarter gain reflected a surge in (primarily unit sales of) motor vehicles, a jump in gasoline sales (mainly higher prices at the pump), and a healthy advance in sales at other stores (mainly quantity, since price changes for this category of sales are, on average, subdued).

Sales During 2010 (December to December)

The retail sector was clearly one of the economic highlights of 2010, posting its strongest performance since 2004. Sales during the year rose 7.9 percent (December to December), a pickup from the 5.1 percent gain during 2009 and the 11.1 percent decline during 2008. Despite this overall strong performance, it is important to remember that not all categories of retail sales performed well, with growth across the many types of retail establishments varying greatly (Figure 2).

•    The strongest gain on a percentage basis occurred in electronic shopping and mail-order houses, which grew at a rate of 16.4 percent. (See column 1 in Figure 2. The latest data available are November to November.) The ongoing shift from brick-and-mortar stores to electronic shopping has supported the longer-term growth of these non-store retailers.

•    The smallest advances occurred in electronic & appliance stores and furniture stores.

•    The growth rates shown in column 1 reflect nominal value and thus can change for two reasons: price and quantity changes. Column 2 in Figure 2 shows the prices during the past 12 months (November to November, latest data) by types of stores. Column 3 shows the quantity changes (nominal growth less changes in prices). The small advance in nominal sales at electronic & appliance stores becomes a double-digit gain when adjusted for the significant declines in the prices for TVs, computers, and appliances — the types of merchandise sold in these stores. 

Private Sector Estimates of Retail Sales

So far, we have focused on government estimates of retail sales. The private sector also publishes estimates of retail sales, and these are generally consistent with the government’s. It is important to keep in mind, however, that the government estimates cover a broader array of stores than the private sector’s forecast. The private sector uses a variety of samples, but none as comprehensive as those used by the government when it constructs its estimates.

For example, the International Council of Shopping Centers (ICSC) reported that sales increased 3.1 percent in the 12 months ended in December 2010. However, the ICSC measures only same-store sales in 32 retail chains (excluding sales at Wal-Mart, the largest retailer) and covers only types of merchandise sold by apparel stores, department stores (including luxury stores), discounters, wholesale clubs, and drug stores.

The National Retail Federation (NRF) estimates that retail sales during the 2010 holiday season (November and December) rose 3.6 percent from sales during the 2009 season. The NRF does not have its own survey of retail sales. Rather, it uses Census data to compile its estimates. And the NRF 2010 figure is a forecast based on regression analysis. Because selected Census estimates for December are not yet available, the NRF has not, as yet, compiled its estimate of sales during 2010.

MasterCard SpendingPulse reported that sales of apparel grew 10.9 percent in the 12 months ending in December 2010, supported by a very strong gain in e-commerce sales (electronic shopping) of apparel. They also reported that sales of consumer electronics increased 1.5 percent, supported again by a very strong gain in e-commerce sales. According to this survey, e commerce sales across all lines of at the retail level grew 17.3 percent during 2010. This survey is an aggregation of credit card purchases (every transaction) in the MasterCard sales network combined with survey based estimates for certain other payment forms such as cash and check. The survey focuses on lines of merchandise and not on sales by the types of retail stores. MasterCard SpendingPulse does not feature a measure of total retail sales. Sales by Wal-Mart are included in SpendingPulse measures.