The problem with “existing store sales”

Quick follow up to my previous post.  Some commenters seem confused about the distinction between existing retailers and new retailers.  New retailers can have a dramatic impact on growth rates, even if a small part of the total.  For simplicity, assume that 94% of the Chinese retail sector is more than year old, and 6% is comprised of new brick and mortar retailers. (Many retailers in China are small family firms, and the country is urbanizing rapidly.)  Also assume that the growth rate of sales at existing brick and mortar retailers (plus those that closed down) is 0%. The growth rate of online is 33% and they comprise 15% of retail.  The new firms might not seem to be a big enough share of the market to dramatically impact the overall growth rate.  In fact, if new firms are 6% of the market, then their contribution to retail sales growth would also be 6%, as (by assumption) they were zero percent of the market one year earlier.

I’d guess that about 5% of China’s 11% retail growth is from online firms, another 6% from new firms, and essentially zero from existing firms.  (That’s based on information in a recent Tyler Cowen post that suggests existing retailer sales are flat.)

I’m sticking with my 6% RGDP forecast for 2016.

Off topic, suppose markets are OK with 1/8% but not 1/4%. How should they respond if this is the Fed’s strategy?

At VTB, global strategist Neil MacKinnon says a 1/8 percentage point increase — which would be the first such move since December 1986 — should be accompanied by a signal from Chair Janet Yellen that the Fed will act again in October if the initial shift has proved acceptable to markets.

And are all Cretans still liars?



29 Responses to “The problem with “existing store sales””

  1. Gravatar of TallDave TallDave
    15. September 2015 at 13:10

    That’s sort of plausible, except that the data generally agrees large firms were growing until 2014.

    So not only did all the 2014-15 growth come from online or new retailers, but this shift suddenly happened just this past year or so.

    And China says large businesses grew by 7%, although I’m not sure how large.

  2. Gravatar of Doug M Doug M
    15. September 2015 at 14:40

    China’s GDP will be what ever China wants it to be.

  3. Gravatar of ssumner ssumner
    15. September 2015 at 14:42

    Talldave, The link you provided supports my claim. Not sure what point you are making. Can you show me some actual data that refutes it? Or are you relying on Chris Balding?

  4. Gravatar of benjamin cole benjamin cole
    15. September 2015 at 16:12

    Anyway, one month’s figures in one sector do not an economy make. With 1.4 billion peope, do you suppose collecting data is a snap?

    The good news is that China is below inflation targets, ergo the People’s Bank of China has plenty of room for stimulus.

    Bad news for the Chinese will be if the PBOC has decided to mimic the Hong Kong Monetary Authority and peg its currency to the US dollar.

    If that is the case, then a recession in China appears possible.

  5. Gravatar of Ray Lopez Ray Lopez
    15. September 2015 at 18:40

    Scott Sumner is the Reflex by Duran Duran. ‘Every little thing the Reflex does leaves you answered with a question mark?’ Good to be two-faced, as well as a two-armed, economist.

    Scott: “I’m sticking with my 6% RGDP forecast for 2016.” – after outlining why existing sales, 94% of the total, are flat. Stubborn as a mule in face of the evidence.

    Scott: “Off topic, suppose markets are OK with 1/8% but not 1/4%. How should they respond if this is the Fed’s strategy?” – why not tell us, liar? You’re the one that thinks the economy is so unstable and so willing to take clues from the Fed that the slightest pronouncement or stance by the Fed sends expectations to the stratosphere. Or are you hedging your bets, waiting to see what will happen so you can say ‘I told you so’, when you did not?

    Scott: “And are all Cretans still liars?” – no, the relevant question, Mr. sub-120 IQ Economist, is: ‘Are all Cretins still liars?”

  6. Gravatar of Cliff Cliff
    15. September 2015 at 19:23


    You are really out of line

  7. Gravatar of Basil Halperin Basil Halperin
    16. September 2015 at 03:44

    Hi Scott,

    I have a new blog post which very much echoes your own comment from a recent post that, “Believe it or not a rate rise in September 2015 would help cause the recession of 2008”.

    In the post, I ask whether or not, from a New Keynesian perspective, the Fed should be raising rates. Not necessarily because the NK framework is “correct” or even best, but because it’s the Fed’s preferred model. The answer seems to me to be a resounding no.

    Would be very curious if you have any thoughts!

  8. Gravatar of TallDave TallDave
    16. September 2015 at 04:23

    Scot — I thought your claim was that the growth was coming from smaller businesses, the link (which is just the NSBC numbers) says large retailers are growing too. So whatever the explanation, that’s not it.

    So either Balding’s unknown source for the top 50/100 retailers is just wrong, or these numbers are a little fishy. Given the YOY import #s, electric numbers, and production numbers, and corporate profits, and the fact this country still arrests traders and journalists for criticizing the economic data, I’m not ready to dismiss Balding yet (although he was clearly too pessimistic in 2012).

    But who knows. I wouldn’t be surprised if there are other explanations lurking in the data. And I think China can definitely produce strong growth if they make some common-sense moves like letting the yuan float and privatizing SOEs.

  9. Gravatar of Benjamin Cole Benjamin Cole
    16. September 2015 at 05:42

    OT, but hot off the press:

    from BLS:

    Not seasonally adjusted CPI measures

    The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent over the last 12 months to an index level of 238.316 (1982-84=100). For the month, the index declined 0.1 percent prior to seasonal adjustment.

    The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decreased 0.3 percent over the last 12 months to an index level of 233.366 (1982-84=100). For the month, the index declined 0.2 percent
    prior to seasonal adjustment.

    The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) decreased 0.1 percent over the last 12 months. For the month, the index declined 0.2 percent on a not seasonally adjusted basis. Please note
    that the indexes for the past 10 to 12 months are subject to revision.


    Well, if you pull out your microscopes, you might find inflation. And if you go to the telescopes, you can see it the future.

    Meanwhile, Kevin Erdmann has been pointing out that much shelter-cost inflation is just local zoning and nincompoopery. If local government restrict housing supply, what should the Fed do?

    Tighten up, so that…less supply comes on stream?

    Who wants condo towers in their single-family detached neighborhood?

  10. Gravatar of Scott Sumner Scott Sumner
    16. September 2015 at 06:18

    Talldave, No, I was not distinguishing between small and large, I was distinguishing between new and existing, which is a totally different concept. Since the growth rate of new retailers is infinite, the growth rate of existing retailers is probably less than average (depending on the amount of exit.)

    BTW, I have consistently said Chinese growth is slowing, and so I’d expect a slowdown in each sub-category.

    Ben, Yup, and they’ll keep undershooting their inflation target

  11. Gravatar of Jesse Jesse
    16. September 2015 at 07:52

    1/8th move, especially if accompanied by that statement would severely reduce confidence in the Fed. It would be proof that they are completely uncertain about the impact of hiking rates and would be akin to the Chinese devaluation, in my opinion. Confidence in the Fed would be shattered as the market questioned whether the Fed truly believed the economy was strong enough to withstand a 25bp hike. If they are going to move (they shouldn’t), the action needs to be very decisive and at a 25bp clip, minimum. I think a 3/8 move would be more assuring than a 1/8 move.

  12. Gravatar of Ben Ben
    16. September 2015 at 08:03

    Matt Yglesias- just print money instead of sovereign borrowing.

  13. Gravatar of Njnnja Njnnja
    16. September 2015 at 12:11

    Re: off topic

    Very clever, but it’s not really a paradox because EMH only says that markets incorporate all past and current information, not future market information.

    So it is strange, but not a paradox, that in this 1/8 point increase now with a conditional .25 bps later case, that the market would have to first react to the 1/8 bps change and show that it is ok with that, but then realize that that would appear to the Fed as the market being ok with the 25 bps increase. Which would then tank the market because it’s not ok with a 25 bps increase. Which in turn would cause the Fed to not increase, and the market would recover. But then the Fed would plan for the increase because the markets are back. And so on and so on with high volatility for as far as the eye can see (or at least until the market figures out that the Fed can’t really follow through on that plan because the Fed can’t figure out if the market is ok or not ok with the 25 bps increase).

    If markets could incorporate the information contained in future market prices then all instruments would be at that future market price already!

  14. Gravatar of benjamin cole benjamin cole
    16. September 2015 at 16:58

    @Ben: I like the idea of FICA tax cuts, financed by QE purchases of US Treasuries which are placed into the Social Security and Medicare Trust Funds.

  15. Gravatar of benjamin cole benjamin cole
    16. September 2015 at 17:04

    Side note to anyone: how hide-bound is the US Federal Reserve? They still talk about interest rates in Old English units; halves, quarters eighths. Even Wall Street adopted the decimal system many years back.

  16. Gravatar of TravisV TravisV
    16. September 2015 at 17:24

    Yglesias: “Why a resurgent, unapologetic left is on the rise globally”

  17. Gravatar of Ray Lopez Ray Lopez
    16. September 2015 at 20:56

    @TravisV – I find the Yglesias thesis that younger votes with no personal experience of the Cold War “Big Brother” fear and 1970s stagflation are driving the return to socialism as unconvincing. Most youngsters don’t vote. Far more likely it’s the older voters who love Big Government, as a safety net and forced savings mechanism (rob thrifty Peter to pay spendthrift Paul). Plus these older voters feel left out of Voodoo Reaganomics, trickle-down economics of the kind Sumner supports, and the Laffer curve. In short it’s the 99% who did not prosper due to Reaganomics. Full disclosure: I belong to the 1%. Note Sumner, who is not in the 1%, positions himself as a People’s Champion, no doubt taking a cue from his liberal father. Luckily, due to money neutrality, anything short of hyperinflation is irrelevant so monetarism is a dead letter, trivial affair of no importance.

  18. Gravatar of ssumner ssumner
    17. September 2015 at 04:46

    Njnnja, This is called the circularity problem–Woodford and Bernanke did a paper on it.

    Ray, You said:

    “no doubt taking a cue”

    The old Ray is back!

  19. Gravatar of Mike Rulle Mike Rulle
    17. September 2015 at 11:17

    @RLopez—-I find your irritating style catchy. What 1% are you referring to?

  20. Gravatar of Daws Daws
    17. September 2015 at 13:09

    Profe Sumner

    Given Trump and Sanders, does the Fed have an obligation to target a median home price, or “yes, I think the country is going in the right direction” poll response incidence?

  21. Gravatar of Ray Lopez Ray Lopez
    17. September 2015 at 16:38

    @Mike Rulle – my 1%. I’m in the 1% (my family is, I have an inheritance): for the USA the minimum net worth needed is USD $8M and up. DC income producing real estate. You notice Sumner, who’s not in the 1% (though he probably has a couple of million saved up) clamors for ‘the people’, whereas I could care less so long as they don’t rob me. The difference between a liberal and conservative. I have found living in four different countries for a year or more that ‘the poor will always be with you’. No need to try and solve all their problems. That said, I think Sumner is agitating for the poor like the rich “Boston Brahmins” do, just to seem nice. He also probably cares less about them.

  22. Gravatar of Major.Freedom Major.Freedom
    17. September 2015 at 17:33


    “You notice Sumner, who’s not in the 1% (though he probably has a couple of million saved up) clamors for ‘the people’, whereas I could care less so long as they don’t rob me.”

    But how can that be Ray? Money is neutral to you. More or less money in your bank account should have absolutely zero effect on the real economy, which means absolutely zero effect on that portion of real output devoted to your personal enjoyment.

    It is almost as if you act in accordance with money non-neutrality, despite your written comments otherwise. If we put more weight on what people do, and put less weight on what people say, then we can know by your actions that money is not neutral to you.

  23. Gravatar of cbu cbu
    17. September 2015 at 17:38

    Why Balding used the data of Chinese retail sales in such a selective and misleading way is beyond me.

    It’s possible that Chinese GDP has been under-estimated instead of over-estimated since 2008 according to this book:

  24. Gravatar of Saturos Saturos
    18. September 2015 at 04:56

    Off topic, but I just learned about this fascinating Depression era monetary experiment:

  25. Gravatar of Ray Lopez Ray Lopez
    18. September 2015 at 08:48

    @MF – “money neutrality” does not mean less money in your bank account due to inflation. It means that due to inflation indexing, among other things, inflation (or deflation) is not a problem to the real economy, either short term or long term. My family for example constantly complains about the low interest they get on their jumbo CDs, but they roll them over anyway. They understand that inflation is low if not negative, and bargains in investments are hard to find, so they don’t bother stretching for yield or being risky. Put another way: nobody, not even seniors on fixed incomes, does nothing to protect against inflation (or deflation) of prices. They take remedies, very quickly, such that any central bank attempt to fool the people (via money illusion or otherwise) quickly fails. That’s the effect of money neutrality.

  26. Gravatar of Ray Lopez Ray Lopez
    18. September 2015 at 08:53

    @Saturos – the Austrian script story is nothing more than this story, on a DC coop and babysitting script, as outlined by D. Henderson: – much ado about nothing.

  27. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    18. September 2015 at 09:05

    Don’t know about Cretans, but the Maltese are, comparatively, living life as a Cabaret;

    ‘In August 2015, negative annual [inflation] rates were observed in eleven Member States. The lowest annual rates were registered in Cyprus (-1.9%), Romania (-1.7%) and Lithuania (-1.0%). The highest annual rates were recorded in Malta (1.4%), Austria (0.9%)and Belgium (0.8%). Compared with July 2015, annual inflation fell in fourteen Member States, remained stable in four and rose in ten.’

  28. Gravatar of ssumner ssumner
    18. September 2015 at 10:25

    Thanks CBU, Everyone should read that.

    Saturos, Yes, an early example of Miles Kimball’s proposal.

  29. Gravatar of TallDave TallDave
    21. September 2015 at 11:29

    OK, I asked Baldwin — his 50/100 data comes from WIND.

    And I think I know how to square that circle now — didn’t China say their official numbers are cumulated? I’m not 100% sure whether that means the NSBC numbers are a moving average of some number of past periods, but that would explain some of the grosser discrepancies.

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