May's Retail Sales & Stimulus Checks
Today’s big economic story is how retail sales “surged” in May, since I’m rather loathe to repeat myself I’m not going to dig into the usual around inflation, the use of nominal figures, how beating bad numbers is not a reason to celebrate, etc, etc. After all what good are the YoY retail sales figures until they factor out inflation especially that for food and energy, which can have a significant YoY impact on prices? I.e. shouldn’t the YoY figures indicate that people are spending more money and receiving more goods, not spending more money to receive the same amount (or fewer) goods than last year?
Okay, I did sort of just repeat myself but you get what I mean.
Instead let’s look at the issue around the stimulus checks and how people are probably spending them, since stimulus checks are being touted as the reason for May’s “strong” retail sales number. As noted in today’s WSJ article on retail spending it takes a nominal YoY spending increase of $3.85 billion to push retail sales up a percentage point, a number that’s roughly 8.02% of the $48 billion in stimulus checks issued during the month of May. In other words even if 100% of the checks issued were cashed/deposited/available to spend during the month of May and 100% of the YoY retail spending increase came from stimulus checks, consumers used 92% of the economic stimulus for savings, debt and other non-retail spending purposes.
The thing to keep in mind is that the above is a “maximum impact scenario” of sorts due to using an assumption that 100% of the YoY increase in sales came from stimulus checks, and that 100% of the checks were even available to spend. Without knowing how many checks were cashed and/or available to spend, how people spent them, and what % of the YoY increase in retail sales came from the stimulus checks, it’s a bit of stretch to make any claims as to their impact. After all even without stimulus checks it’s likely that some months will show higher than expected retail sales due to the impact of inflation, people making previously deferred purchases, seasonal impact, etc, etc.
We can always speculate in the absence of solid data but the data we do have doesn’t seem to support the idea of mass spending of stimulus checks, or the bulk of May’s consumer spending number coming from retail sales. As is often the case the media has chosen to put a positive spin on the story and/or leap to conclusions, instead of just reporting the story for what it is:
“Retail sales came in higher than expected but the numbers still didn’t outpace inflation, and for the time being we lack sufficient data to gauge the impact of the stimulus checks”. With respect to the chances of a recession an upside surprise is always a good thing however it doesn’t disabuse the overall recessionary trend created by other metrics, and we need a multi-month positive trend to truly say the chances of a recession have decreased.
Finally the other issue is that with rising consumer debt levels and the rapidly increasing cost of living no sane person should root for people to spend their stimulus checks, when they should be using them to shore up savings and pay down debt. Nothing in this world is free and I’m continually confounded by the desire (by some) for consumers to spend themselves into ruin so economic indicators can look good today, at the expense of the consumer’s financial health tomorrow.
Sources:
The WSJ: “Stimulus Checks Bolster Retail Sales” – Jeff Bater and Brian Blackstone, June 12, 2008.
Subscribe to Analytical Wealth
