Inflation And The Retail Sales Fantasy...

Once again this morning the markets were greeted by the bubblehead's in the media victoriously announcing that November's retail sales were better than expected and October's were revised higher.

And once again, we have to look behind the Government wizard's curtain to see the golden truth about what is really going on with the numbers.  If you dissect the numbers today, you'll find the biggest boost came from gasoline sales.  Within a certain range of tolerance, I consider gasoline to be of inelastic demand, which means people will consume at least a constant amount until the price goes over a certain price level, of which we are not there yet.  We know the price of gasoline rose in November, which means that a big portion of the retail sales increase from October to November was from gasoline inflation.

The first chart below shows the dollar level of monthly retail sales as tracked by the Fed.  The second chart below show the CRB Index, which is an index that consists of a basket of diversified commodities.  As you can see from comparing the two charts, the level of retail sales is HIGHLY correlated with the level of prices in the system (click on the charts to enlarge):

My point is that most of the gleefully reported retail sales increase in November was derived from price increases - retail sales includes food and Walmart is a big componenent as it sells food and gas but does not break out gas sales on a monthly basis.  Specifically, in November, gasoline prices were the primary stimulant for the better sales reported. 

Make no mistake, there's no question that the Black Friday weekend sales were much better than expected. However, I have been of the view that the extreme discounting, especially at places like Macy's, essentially "pulled forward" a substantial amount of future retail sales, as polls indicated that shoppers took advantage of pricing deals to purchase both discretionary holiday items PLUS necessities.

If you think I'm off base, you can read about Best Buy's earnings report for its quarter ending Nov 30, which was released, ironically, just before the retail sales report.  Best Buy stock is down 15% right now because its sales came in well below expectations and the company reduced its full-year forecast for sales and profits.  Even more stunning, its U.S. same-store-sales fell 5% in the quarter.  In retail that kind of number is an unequivocal disaster.  Here's a summary:  Best Buy Link

The moral of the story is that the economy is much weaker than the highly manipulated Government reported numbers would have you believe.  With true unemployment continuing to increase and price inflation starting to rear its ugly head, we can expect a further deterioration in the condition of the real economy.

The good news is that gold and silver are still inexpensive relative to the dollar-price levels to which they are headed.