August Retail Sales Surprise To The Upside, Because They Were Down?

According to the movie The Princess Bride, the worst classic blunder anyone can make is to get involved in a land war in Asia. No kidding. The second is something about Sicilians and death. There is also, I’ve come to learn, an unspoken third which cautions against chasing down and then trying to break down seasonal adjustments in economic data.

Some things are best left just as they are published.

The Census Bureau, yesterday, released its estimates for retail sales. Most pay attention only to the seasonally-adjusted version which was surprisingly positive for August 2021 (if after an unusually large downward revision to July). It was widely expected sales would continue to fade, another monthly move downward nonetheless as the last Uncle Sam helicopter likewise fades on the calendar.

Instead, seasonally-adjusted, overall retail sales were calculated to have gained 0.71% from July to August. The implication according to today’s mainstream interpretation seems to be that the last payroll report, the one that missed big, must have been itself a statistical quirk and that consumers as workers are doing just fine. More than fine.

August just so happens to be one of the key months on the retail calendar, too. In most years, more retail sales happen during it than in even November (Christmas-y December remains always as the big one) as parents pick up as much and many back-to-school supplies and material as they can afford. During normal years, it creates an unmistakable seasonal pattern:

This is, of course, what seasonal adjustments are meant for; to take regular seasonal patterns and translate the unadjusted data into a comparable monthly change apples-to-apples (including counting up the number of weekend days and accounting for changes in when holidays show up). For our immediate purposes, it is normal for unadjusted August retail sales to end up substantially more than July.

Therefore, what Census does is try to translate what the “normal” increase from July to August must be, and then compare the unadjusted current data to that estimate to come up with the seasonally-adjusted figure.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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