Uncle Sol Starting a thought farm

Keeping Up the Illusion

Mike Shedlock at Mish's Global Economic Trend Analysis has an interesting piece on a recent economic report issued by the Census Bureau. The data released shows a decrease in retail sales from a month ago, but a nice increase over a year ago. Mish's take?

The methodology misses stores that went out of business and have no retail sales. Circuit City is a prime example but also note that thousands of small strip mall stores are now shuttered as well. Some of that volume went to the surveyed stores making it appear sales went up.

This is quite typical of the data we frequently see from the government, and is parroted by the mainstream media. "Yay! The economy is recovering! Look at the numbers!" But this is nothing more than an illusion, reported to make you feel better about the situation while keeping you misinformed.

Here is a hypothetical to illustrate how the mirage works. Let's say that your neighborhood has a Home Depot and a Lowe's right next door to each other, and each store does about $100,000 in sales per month. Then the economy takes a downward turn, and both of their sales begin to decline. After about six months each store is only doing about $80,000 in sales per month. Let's also say that for some reason at this location the Lowe's profit margin is a bit tighter than the Home Depot's or the management is a bit more conservative or for whatever reason, Lowe's decides to close the store. After the store is closed, the following month, Home Depot records $150,000 in sales. That's quite a spike for the Home Depot, but the total sales for their type of products in that location has actually gone down another $10,000. So, an area that once supported $200,000 in sales between two stores now only supports one store doing $150,000. The trend is obviously downward. But the Census decides to collect data throughout this period only from the Home Depot location. And they track a huge spike the month after the Lowe's goes out of business and show a "recovery in retail sales."

It's a nice little game if your goal is to make people think things are better than they are.

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