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Retail Sales: Don’t Look to July for Guidance on December

By Marek Fuchs

It's become the latest word in conventional wisdom on retail sales: As July goes, so goes Christmas.


July chain store sales will be out Thursday and the media may already be queuing up the overwrought conclusions on the report's link to the Christmas season.

As the media often see it, back-to-school season starts early, Christmas starts early, the two run into each other and essentially cross-pollinate. It’s all but an article of faith: By looking at Wal-Mart (WMT), Target (TGT), Apple (APPL), Gap (GPS), American Eagle (AEO) and the rest of the gang in July, you can extrapolate out through Christmas.

The Wall Street Journal – and pretty much everyone else – spells out the correlation with alarming regularity. But as we prepare for this summer’s retail numbers, inquiring minds need to know: Is it actually true?

A big maybe

The answer is a big maybe. As in: possibly, sometimes or once-in-while. But if it’s consistent, reliable, inarguable correlation you're looking for, you'd better look elsewhere.

We saw it happen a few times about a decade ago – and now and again since – but more recently the pattern seems a bit of a joke. You’d likely do better playing the odds at a dog track.

Take 2006. In the run-up to July retail numbers, CNNMoney predicted trouble, which, they said, would carry right through Christmas. But two weeks later, the numbers were good, earning a happy headline from – you guessed it – CNNMoney.

So that meant a strong Christmas, right? Wrong. August was, in fact, slow, and CNNMoney reported, in December, that retail sales were soft. So 2006 was more convoluted than clear, but how about more-recent times? Enter 2011.

Daily Finance was already in impending doom mode when June’s sales came out, saying that the month's weak retail sales were looking bad for the back-to-school numbers. A month later, though, they were singing a very different tune, declaring, July Retail Sales Hint at Solid Back-to-School Season.

That meant that a corner had been turned and Christmas would prove to good, right? You really didn’t ask that again, did you?

Christmas, as Daily Finance would put it in January, “barely rose” from the previous year.

More of the same, with a twist

It was more of the same last year, with a twist. July retail sales were good, as Bloomberg reported. Conditions held so well for August that Bloomberg didn’t even bother changing the happy headline, just switching out the month.

With the consistency throughout the summer, you could draw a through line to Christmas, right? Another wrong: Retail Sales in U.S. Increase Less Than Forecast, Bloomberg reported in December.

So there you have it. Any link between July and Christmas is overdrawn, at best. But why? There are several reasons:

Profitability. Sales numbers say nothing of it. In fact, profits are endangered by the sales that pump the top-line numbers. Never draw too many conclusions – let alone six months out – from top-line numbers. Rather than indicating good times, pumped up sales in July sometimes predict poor profitability in December (and vice versa.)

Consumer credit. Consumer credit, an important and too often misinterpreted statistic, was reported Wednesday, and it rose in June, although by less than consensus expectations. Federal Reserve data showed that, while car and education loans rose, credit card use fell by the most in a year. Pay attention to this number, as it might hint toward the Christmas season better than raw retail sales. And the media tend to interpret higher consumer credit as a “show of confidence,” as they so often put it, by consumers. Too often, though, it just means the American consumer is up to his same old tricks, spending in July only to be maxed out by December.

Economic shifts. We live in a bipolar economic environment. A glib feeling in July does not necessarily mean merry shoppers in August, let alone December.

Shift in shopping behavior. See: our bipolar economic environment. We’re a moody people. Moreover, with the advent of online shopping, consumer behavior is in constant flux. In fact, a year after The New York Times ran a big story about how back-to-school season had started earlier, they ran another, which said it was starting later.

This may speak to the capricious nature of the consumer or the media – or both. Either way, it’s clear: When it comes to retail numbers, don’t jump to conclusions in August about anything other than July.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.