Maybe, Baby

JACKSON HOLE, Wyo. -- The February

retail sales

report will be

released Thursday morning.

Consensus forecasts put the overall sales increase at 0.8% and the ex-autos sales increase at 0.7%. But estimates from a couple of the better forecasting units around -- like the ones at

Goldman

and

Salomon Smith Barney

-- clock in higher than that.

Your correspondent is fully aware that he has probably just pretty much guaranteed a weak print by pointing out the possibility of an upside sales surprise. Yet he will run through the implications of eye-popping numbers anyway -- just in case.

  • All of the analysis herewith is based on the following assumptions. (a) The February retail report prints 1.3% overall and 1.0% excluding autos. These numbers represent an average (roughly) of the forecasts from the aforementioned shops. (b) The March retail report delivers a 0.8% overall sales decrease and a 0.4% ex-auto sales increase. The overall decrease owes mostly to an anticipated 4.4% plunge in car and truck sales, which soared last month. The ex-auto increase represents the smaller of two worthy candidates. The first is the average long-term increase in ex-auto sales; that clocks in at 0.4%. The second is the average increase in ex-auto sales following months during which such sales rose by 0.9% or more; that clocks in (over the past three years) at 0.5%.
  • Retail sales excluding building materials, gasoline and vehicles vaulted 5.9% during the fourth quarter; they will rise by even more than that -- 6.8% -- during the first. This stripped-down measure of retail sales is important because it goes directly into the personal consumption expenditure (or PCE) numbers, which in turn go directly into the gross domestic product numbers. (Government statisticians get sales data for building materials, gasoline, and vehicles from other sources.)
  • This 6.8% increase will prompt upward revisions to first-quarter consumption estimates. The most pathetic forecasters out there are still so stuck on their slowdown scenarios that they are calling for (apparently in all seriousness) a first-quarter consumption increase that will be lucky to reach 3.0%. But objective and thinking forecasters know better. They know that the main reason the retail sales report captures only 46% of the spending that goes on in any given month is because, unlike the PCE numbers, it does not include spending for services. They know that spending for services, which accounts for 59% of all consumption, rose just 1.7% during the fourth quarter -- its smallest increase since the second quarter of 1993 -- owing to two huge plunges (7.3% in October and 2.8% in November) in spending for utilities. And because they know that spending for services has rebounded during the first quarter, they also know that the first-quarter PCE increase is likely to come close to matching its fourth-quarter gain, which clocked in at 4.5%.
  • This will prompt upward revisions to first-quarter GDP estimates because a PCE increase north of 4% will contribute more than three full percentage points to the growth rate all by itself. Given that the slowdown crowd is currently calling for a first-quarter GDP increase in the neighborhood of 2% -- in other words, working backwards in order to justify its calls for more Fed easing -- one can only wonder at why anyone would place any stock at all in anything members of this lot have to say.

Especially when they themselves don't believe the claims that are pouring from their holes. Consider this: It is a fact that output equals hours worked plus productivity. The January and February

employment reports

confirm that hours worked will rise 2.7% during the first quarter -- even if they fall by 0.1% in March. Any New Era type worth his salt, meanwhile, will swear to you that productivity is rising at least as quickly now as it did throughout the 1960s -- 2.9%.

My

HP 28S

says that 2.7% plus 2.9% equals 5.6%. And maybe my battery is shot. But it's much more likely that these folks need to explain why their two-point-something GDP estimates don't even come close to reflecting the productivity numbers they love to cite. And just for the hell of it, go ahead and chop that 5.6% in half; you're still left with a growth rate bigger than what the sissy contingent is predicting.

Mind the gap indeed.

Anyway. The retail report stands a good chance of surprising on the upside, and that ought to alter perceptions about growth in general.

But do keep in mind that government statisticians love nothing more than to make this column look bad when your chump correspondent is enough of a sucker to put a point forecast in print.

Side Dish

My absence yesterday had ... uh ... nothing to do with snow.

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