Consumer Spending Up? Not Really

The government (Census Bureau, to be specific) reported yesterday that consumer spending rose 0.5 percent in January.  The report was designed to give the White House’s failed economic policy some cover. But the number is bogus, and Mike Shedlock (Mish) explains precisely why:  same store sales.

Government methodology for reporting retail sales is based on sampling stores in existence. It does not factor in stores not in existence but recently were. Nor does it handle closed stores when the chain is still doing business.  Government reporting of retail sales is fatally flawed. To understand what is going on, all one has to look at actual tax data. Heard any rosy numbers from states about sales tax collections?

Say a neighborhood had 3 grocery stores last year.  Two closed because of the recession, leaving one to serve, say 999 families. Even if each of those families buys only half what they did last year, the remaining store’s sales will show a 66 percent increase in same store sales.  In reality, there was a 50 percent drop in spending, but the government can’t compute that.

Let’s go back to Mish’s state sales tax analysis.  Mish points to New York, Indiana, Texas, and Tennessee. Each state shows a sharp decline in sales tax revenue year over year.  People are spending less at fewer remaining stores, inflating the same store sales data.

Until merchants stop closing locations faster than they open new ones, the government will continue to overstate consumer spending.