The Census Bureau of the Department of Commerce announced today that the advance estimate of seasonally adjusted U.S. retail sales for November was $197.9 billion. This was an increase of 0.75 percent from the previous month and an increase of 3.19 percent in the past year. The gain was led by apparel and accessory stores (+2.8%), building material, hardware, garden supply, and mobile home dealers (+2.0%) and furniture and home furnishings stores (+1.5%). Sales of stores in the general merchandise group were virtually unchanged from last month, rising by .04%

All of us are consumers of goods and services. Retail sales are the monthly total of all the money we spend on mail order purchases and in stores, restaurants, car dealers, gas stations and other retail establishments. Personal consumption expenditures account for 2/3 of the U.S. Gross Domestic Product -- the ultimate measure of the state of the national economy. So, retail sales provide important information on changes in this major component of the economy.

The advance estimates of retail sales are based on a small subsample of the Census Bureau's full retail sales sample. Estimates from the advance and the subsequent full survey can differ because of the earlier reporting in the advance survey and because of sampling variability present in both surveys. Because of this, the Census Bureau has to update the monthly numbers twice before arriving at the correct number. They call the number released today the "advance estimate" for November. Next month this number will be updated with a "preliminary" number. Two months from now the Bureau will release the "final" number for this month. In other words, we won't really have a handle on the sales during November until the middle of next February.

Thus, we need to be cautious about drawing any conclusions from recently released monthly data. A prudent approach would be to study changes in the data over a longer period of time, say a year. That way we would be dealing with 10 final numbers, one preliminary number, and one advance number, and the error introduced by the more recent numbers would be a relatively small fraction of the total. The table below shows the year-to-year percentage changes in total sales from June to November.

 Annual % Change     June   July   Aug.   Sep.   Oct.   Nov.
Total Retail Sales   +6.27  +5.73  +5.02  +4.41  +2.63  +3.19

The November advance number is definitely higher than the revised number for October. But, that doesn't tell the whole story. I plotted this data to see what it looked like and found that the November number fell right on a downward trend line defined by the June-through-September final values. The October number falls below the trend line. Plot up the numbers and you'll see what I'm talking about.

So, even though year-to-year retail sales have increased every month, the increases have become progressively smaller. In just the last five months the rate of increase has slowed from 6.27% to 3.19%.

In other news, today the University of California at Los Angeles released the results of a study forecasting economic conditions for the next 3 years. The study predicted that the annual rate of increase in the CPI would be less than 3% and that real GDP would grow annually at 2.5% between now and the end of 1998. The study went on to forecast that the rate of unemployment would hold steady around 6% and that consumer spending would increase at an annual rate of only 1.4% during the three-year period. Net corporate profits for 1996 were predicted to grow by 4.4% in 1996. This is in pretty good agreement with the NAPM forecast I reported on yesterday. The respondents to the NAPM semi-annual survey estimated that manufacturing revenues would expand by 4.8% next year.

It will be interesting to come back three years from now and see how the UCLA forecast turned out. Of course, by that time they will have revised it at least a couple times.

Yesterday I said that the November report on the Consumer Price Index would come out today. It didn't. Now it's supposed to come out tomorrow, along with a whole slew of other economic news. It should be a wild and crazy day.

Byline: Lafferty (MF Merlin)