The Illusion of Retail Sales Growth: Unveiling the True Picture
Introduction:
In normal times, an increase in retail sales would be cause for celebration. It would signify a thriving economy, with consumers spending and producers reaping the benefits. However, the past three years have challenged this notion. Inflation rates have skyrocketed, rendering the nominal retail sales figures misleading. This article aims to shed light on the true state of retail sales and the underlying factors that contribute to this illusion.
The Dilemma of Nominal Retail Sales:
Retail sales are typically reported in nominal terms, which only reflect the amounts spent. However, in times of high inflation, this approach fails to capture the reality of increased prices. As consumers, we experience this firsthand when the cost of goods and services rises. What used to cost $1 now demands $1.50 or $2. Despite this, government data continues to report retail sales in nominal terms, presenting a distorted view of economic progress.
The Need for Adjustments:
While various aspects of government data today raise skepticism, the failure to adjust retail sales figures for inflation is particularly concerning. Unlike gross domestic product (GDP) numbers, which are adjusted for inflation, retail sales remain unadjusted. This raises the question of why no official source offers real retail sales data. E.J. Antoni, an expert in this field, recognized the need for change and devised a method to adjust sales figures based on dollar depreciation.
The Reality Unveiled:
Antoni’s adjustment reveals a stark contrast between nominal and real retail sales. His calculations indicate that the apparent growth in sales over the past 3 1/2 years is illusory. In fact, when accounting for inflation, businesses are selling less, and consumers are paying higher prices for the same goods. This revelation exposes the extent of inflation and its impact on the economy. It is clear that celebrating increased retail sales as a sign of economic growth is misguided.
The Fragility of Data Reporting:
The prevailing belief in these misleading figures begs the question of why people continue to believe them. The answer lies in the phenomenon of social proof, where individuals trust information because others do. However, the current state of data reporting lacks a foundation in reality, making it highly fragile. The low savings rate and record-high credit card debt further exemplify the precarious situation we find ourselves in. This combination creates a candle burning at both ends, with little room for economic stability.
The Masking Effect:
Retail sales figures are not the only economic indicators that mask the underlying reality. Factory orders and wholesale inventories suffer from the same lack of adjustment for purchasing power. Only a few dissident economists dare to challenge this flawed approach. When sharing this revelation with friends from various political backgrounds, they are consistently amazed by the extent of the deception. The credibility of government economic reporting is now in question, as it fails to accurately represent the true state of the economy.
The Limits of Demand-Focused Analysis:
Another theoretical problem arises from our incessant focus on demand rather than supply. This habit originated in the 1930s, when experts believed that low aggregate demand prolonged the Great Depression. At that time, the government was seen as a substitute for private savings and investment. Decades later, this belief persists, with government spending being hailed as a positive contributor to overall output. GDP calculations even include government spending on the plus side of the ledger. This distortion has skewed economic data for generations, fueling a flawed understanding of the true impact of government intervention.
The Time of Astonishing Growth in Government:
We are currently witnessing an unprecedented period of government growth, with the debt-to-GDP ratio rivaling that of World War II. Yet, despite the signs of a looming recession, it remains unacknowledged due to the flawed data reporting. To remedy this situation, legislative or executive action is necessary to improve data accuracy. Without reliable data, we are trapped in an epistemic void, unable to fully comprehend the extent of inflation and the prosperity lost due to government intervention.
Conclusion:
The illusion of retail sales growth in the face of inflation is a concerning reality. The failure to adjust these figures for price increases distorts our understanding of economic progress. This article not only highlights the need for adjustments but also exposes the fragility of data reporting and the flawed focus on demand over supply. It is crucial to recognize the impact of government intervention and strive for more accurate data to navigate the business cycle effectively. Only then can we escape the epistemic void and regain a sense of honesty in economic reporting.
