WERE RETAIL SALES A WHOLESALE LET-DOWN? AND WHAT ABOUT THE VELOCITY OF MONEY? (Originally from 2015)

(I believe that the blog post below is from February 20, 2015.)



Thanks for reading, and for those who read my earlier posting, welcome back. Last week, the web pages of CNBC and Bloomberg reported that the Commerce Department announced that estimated retail sales in the U.S. declined sharply for the second consecutive month in January 2015. However, the web page for the Census Bureau indicated that estimated retail sales for November and December of 2014 and January 2015 increased by a fairly strong percentage compared with the levels of November and December of 2013 and January of 2014. At least some of the decline in retail sales was attributable to a large decrease in the price of gasoline in recent months, because the retail sales data are measured in dollars that have buying power that fluctuates with changing prices.

The large decline in gasoline prices was at least in part due to lower oil prices at a more wholesale level, which could explain the large drop in the Producer Price Index in January 2015, noted earlier this week by the web pages of the Bureau of Labor Statistics and the New York Times. With much lower gasoline prices, people do not need to spend as many dollars on gasoline and yet they can continue their regular driving routines.

My sense is that from the information on the Bloomberg web page, many were hoping that plummeting gasoline prices would lead to increases in expenditures on other items because at least some probably expected a smaller decline in estimated retail sales, if not an increase, for January 2015. Would it be best to view the results so far as mixed? On the one hand, the retail sales report suggests that at least on a seasonally-adjusted basis (which should compensate for a surge in retail sales at the end of the year), retail sales excluding automobiles and gasoline were up slightly in January 2015. Also, the three-month period from November 2014 through January 2015 shows solid growth when compared with the same three-month period one year earlier. On the other hand, with overall estimated retail sales down sharply two months in a row, does that indicate that the declines in gasoline prices are not translating into a dollar-for-dollar increase in expenditures in other areas? Is this a return to sales patterns more in line with a sluggish recovery in the U.S. following the Great Recession after a period of above-trend retail strength?

The velocity of money is not calculated more frequently than on a quarterly basis due to GDP only being reported on a quarterly basis. However, if the velocity of M1 were reported on a monthly basis, what impact would these overall declines in estimated retail sales have had all other things equal on velocity in December 2014 and January 2015?