Thursday, June 11, 2009
Conspicuous Correlation: Retail Sales May 2009
Today, the U.S. Census Bureau released its latest nominal read of retail sales showing a increase of 0.5% from April 2009 and 9.6% decline from May 2008 on an aggregate of all items including food, fuel and healthcare services.
Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales experienced another significant decline falling 9.65% compared to May 2008.
Further, adjusted for inflation, “real” discretionary retail sales declined 8.64% since May 2008.
On a “nominal” basis, there appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.
The following charts show my initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the “discretionary” retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.
As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.
One problem with this initial analysis is that both retail sales and the S&P/Case-Shiller Composite index are reported in “nominal” (i.e. non-inflation adjusted) terms and thus result in a somewhat skewed view especially for the retail sales data.
As you can see from the above charts (click for larger version), adjusted for inflation (CPI for retail sales, CPI “less shelter” for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.