John Mauldin serves up another good column this week, delving into the recent Fed statement and retail sales numbers, and wondering where consumers are getting all of the money they seem to be spending.
On the retail sales numbers, that showed a November increase of 1%, he points out that November just happened to be the month that the Census Bureau changed their sampling group. That’s one point that CNBC failed to mention:
Retail sales come from the Census Bureau doing a sampling (polling) of various retailers. The retail numbers are notorious for being revised significantly. First, the initial monthly numbers are not yet adjusted for prices changes.
But even more interesting is a footnote in the retail sales release brought to my attention by Barry Ritholtz. It seems the Census Bureau changed the sampling group. They do this about every two and a half years, and did it for November. From the website:
“The Census Bureau periodically redesigns and reselects the samples for its business surveys to reflect the results of the latest Economic Census. The Advance Monthly Retail Trade Survey is being revised to reflect the 2002 Economic Census of Retail Trade and more recent data from the Business Register. This ensures that our sample is representative of the current retail industry. Revising the sample also allows the Census Bureau to redistribute the burden of reporting for small and medium sized companies.” (http://www.census.gov/svsd/www/aug06faq.html)
So we have a different set of companies being surveyed. Nothing wrong with that, as when you read their explanation it makes perfect sense. But if you look at the potential sampling error further down in the explanations, the margin of error is much higher than 1%.
Like John says, there’s nothing wrong with changing the sampling group - but then it’s not quite accurate to compare that month’s numbers to the previous month’s, is it?
He remains quite leery of the markets at these levels, still seeing too many warning signs:
Maybe I just don’t get it. Scratch that. I clearly don’t get it. I simply don’t see the risk versus reward of the broad stock market at these levels, with all the warning signs we can see today. To argue for higher market levels, as almost every economist is (Barron’s in their recent roundtable forecast had not even one bearish participant), is to believe that this time it’s different. It almost never is.
I admit to the possibility. But I find it hard to risk capital in long-only stock investments, my own or clients’, in what looks and feels like 1999. Party on, Garth!
