Conspicuous Correlation: Retail Sales February 2008

Today, the U.S. Census Bureau released its latest nominal read on retail sales showing a decline of 0.6% from January 2008 and a 2.6% increase since February 2007 on an aggregate of all items including food, fuel and healthcare services.

Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales, on the other hand, experienced a significant decline falling 0.38% since January 2008 and 1.88% compared to February 2007.

Further, adjusted for inflation, discretionary retail sales declined 5.74% since February 2007.

On a “nominal” basis, there appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following charts show the initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the “discretionary” retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.


As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

One problem with this initial analysis is that both retail sales and the S&P/Case-Shiller Composite index are reported in “nominal” (i.e. non-inflation adjusted) terms and thus result in a somewhat skewed view especially for the retail sales data.

In fact, the year-over-year change to “nominal” discretionary retail sales has been positive for seven of the last eight months while the year-over-year change to “real” discretionary retail sales has been negative for twelve straight months (see the following chart).

The key point here is that although inflation (as reported by the CPI) has been relatively stable in recent years it is always a factor and in light of the latest surprise increases to the CPI results as well as many anecdotal reports of producers now passing through increasing energy prices to the consumer, it’s important to adjust retail sales (and home values) in order to fully understand its direction.


As you can see from the above charts (click for larger version), adjusted for inflation (CPI for retail sales, CPI less shelter for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Given the anecdotal accounts of homeowners drawing equity out of their homes with refi’s and HELOCs and using the proceeds to buy consumer goods, it could be interesting to attempt to “shift” the retail spending in time as the decline to home values would surely precede a pullback in consumer spending but for now I’ll leave it aligned and work on the shifting in a later post.

In past posts I attempted to build a 12 month moving Pearson’s correlation series in order to demonstrate the true correlation between the rate of change of both discretionary retail sales and home values but although the movements may be coincidental, they really share no actual binding correlation.

I may dust off the correlation chart in future posts but for now let’s just assume that both home values and discretionary retail sales are not doing very well, especially in “real” terms and the correlation is at least coincidental with the overall unhealthy state of the economy.

Conspicuous Correlation: Retail Sales January 2008

Today, the U.S. Census Bureau released its latest nominal read on retail sales showing 0.3% growth from December 2007 and 3.9% compared to January 2007 on an aggregate of all items including food, fuel and healthcare services.

Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales, on the other hand, experienced a significant decline falling 1.26% since December 2007 and 2.79% compared to January 2007, the worst nominal year-over-year decline since February 2003.

Further, adjusted for inflation, discretionary retail sales declined 6.48% since January 2007, the single largest monthly decline since at least January 1993.

On a “nominal” basis, there appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following charts show my initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the “discretionary” retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.


As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline substantially, retail spending has remained low but has not continued to consistently contract.

One problem with this initial analysis is that both retail sales and the S&P/Case-Shiller Composite index are reported in “nominal” (i.e. non-inflation adjusted) terms and thus result in a somewhat skewed view especially for the retail sales data.

In fact, the year-over-year change to “nominal” discretionary retail sales has shown some positive months recently while the year-over-year change to “real” discretionary retail sales has been negative for thirteen straight months (see the following chart).

The key point here is that although inflation (as reported by the CPI) has been relatively stable in recent years it is always a factor and in light of the latest surprise increases to the CPI results as well as many anecdotal reports of producers now passing through increasing energy prices to the consumer, it’s important to adjust retail sales (and home values) in order to fully understand its direction.


As you can see from the above charts (click for larger version), adjusted for inflation (CPI for retail sales, CPI less shelter for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Given the anecdotal accounts of homeowners drawing equity out of their homes with refi’s and HELOCs and using the proceeds to buy consumer goods, it could be interesting to attempt to “shift” the retail spending in time as the decline to home values would surely precede a pullback in consumer spending but for now I’ll leave it aligned and work on the shifting in a later post.

In past posts I attempted to build a 12 month moving Pearson’s correlation series in order to demonstrate the true correlation between the rate of change of both discretionary retail sales and home values but although the movements may be coincidental, they really share no actual binding correlation.

I may dust off the correlation chart in future posts but for now let’s just assume that both home values and discretionary retail sales are not doing very well, especially in “real” terms and the correlation is at least coincidental with the overall unhealthy state of the economy.

Conspicuous Correlation: December 2007

In light of recent increases to consumer prices and declining retail sales, I’ve reworked my analysis of the possible correlation between falling home values and declining consumption of the most “discretionary” retail items.

On a “nominal” basis, there appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following charts show the initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the “discretionary” retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.


As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

One problem with this initial analysis is that both retail sales and the S&P/Case-Shiller Composite index are reported in “nominal” (i.e. non-inflation adjusted) terms and thus result in a somewhat skewed view especially for the retail sales data.

In fact, the year-over-year change to “nominal” discretionary retail sales has been positive for seven of the last eight months while the year-over-year change to “real” discretionary retail sales has been negative for twelve straight months (see the following chart).

The key point here is that although inflation (as reported by the CPI) has been relatively stable in recent years it is always a factor and in light of the latest surprise increases to the CPI results as well as many anecdotal reports of producers now passing through increasing energy prices to the consumer, it’s important to adjust retail sales (and home values) in order to fully understand its direction.


As you can see from the above charts (click for larger version), adjusted for inflation (CPI for retail sales, CPI less shelter for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Given the anecdotal accounts of homeowners drawing equity out of their homes with refi’s and HELOCs and using the proceeds to buy consumer goods, it could be interesting to attempt to “shift” the retail spending in time as the decline to home values would surely precede a pullback in consumer spending but for now I’ll leave it aligned and work on the shifting in a later post.

In past posts I attempted to build a 12 month moving Pearson’s correlation series in order to demonstrate the true correlation between the rate of change of both discretionary retail sales and home values but although the movements may be coincidental, they really share no actual binding correlation.

I may dust off the correlation chart in future posts but for now let’s just assume that both home values and discretionary retail sales are not doing very well, especially in “real” terms and the correlation is at least coincidental with the overall unhealthy state of the economy.

Conspicuous Correlation: November 2007

In light of yesterday’s results for Producer Prices, and Retail Sales and Today’s results for Consumer Prices, I’m reworking my analysis of the possible correlation between falling home values and declining consumption of the most “discretionary” retail items.

On a “nominal” basis, there appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following charts show the initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the “discretionary” retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.


As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

One problem with this initial analysis is that both retail sales and the S&P/Case-Shiller Composite index are reported in “nominal” (i.e. non-inflation adjusted) terms and thus result in a somewhat skewed view especially for the retail sales data.

In fact, the year-over-year change to “nominal” discretionary retail sales has been positive for the last seven months while the year-over-year change to “real” discretionary retail sales has been negative for twelve straight months (see the following chart).

The key point here is that although inflation (as reported by the CPI) has been relatively stable in recent years it is always a factor and in light of the latest surprise increases to the PPI and CPI results as well as many anecdotal reports of producers now passing through increasing energy prices to the consumer, it’s important to adjust retail sales (and home values) in order to fully understand its direction.


As you can see from the above charts (click for larger version), adjusted for inflation (CPI for retail sales, CPI less shelter for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Given the anecdotal accounts of homeowners drawing equity out of their homes with refi’s and HELOCs and using the proceeds to buy consumer goods, it could be interesting to attempt to “shift” the retail spending in time as the decline to home values would surely precede a pullback in consumer spending but for now I’ll leave it aligned and work on the shifting in a later post.

To make the analysis even a bit more formal (at the prompting of reader Deejayoh) I also plotted the year-over-year changes an overlaid a 12 month moving Pearson’s correlation in order to see the “exact” correlation between the two data series (click for larger chart).

As you can see, although there was a significant correlation of the declines of these series starting in August 2006, this relationship has been falling away as real home values consistently contract and real retail sales remain negative but not falling as consistently.

This is probably a reasonable conclusion as expecting perfectly correlated changes in home values and consumer spending seems unlikely BUT it is probably important to note that home values and the level of consumer spending on discretionary items are in fact both consistently contracting.

Defining Inflation: CPI October 2007

In an effort to gain a little better perspective on the historic, current and more importantly future direction of inflation, I’m adding coverage of the monthly CPI data to the lineup of regularly occurring posts.

I’ll continue to develop the analysis adding other housing and economic related data in future posts but for now, let’s just get a sense of how well inflation is measured and read.

I think it’s safe to say that the notion of inflation being moderate and contained is a widely held belief.

But is it entirely accurate?

Although there is a clear difference between today’s circumstances and that of the troubling inflationary eras of the 70s and early 80s, consumer households still appear to be facing some pretty significant rising price pressures.

We are all aware of the fact that gasoline is priced considerably higher now than just three years ago but what about other essential consumer goods and services?

The following chart (click for larger version) shows indices for Food and Beverage, Apparel, Gasoline, Medical, Education, Owners’ Equivalent Rent, Household Fuel, CPI Core and for sanity’s sake, the Case-Shiller Composite index since 1997 all normalized to a base of 100.

First, notice that the black “dotted” line is the CPI Core index, which is simply the CPI minus food and fuel.

If you were to dwell mostly on CPI core, as the Fed does when evaluating future expectations, inflation does look moderate.

But, notice that, excluding the Case-Shiller index for a moment, Gasoline, Household Fuel, Education and Medical prices have increased (and are continuing to increase) fairly significantly.

This seems to fit well for our general knowledge of both the obvious increase in oil costs and the widely reported increasing prices for medical goods and services and of college room, board and tuition.

Next, notice that Owners’ Equivalent Rent, the price index that the government uses to represent housing in the CPI, looks unusually stable and seems to understate increases to housing prices when compared to the more realistic and accurate S&P/Case-Shiller home price index.

Lastly, notice that Food and Beverage prices recently appear to be tipping up a bit, likely as a result of the prolonged increase in fuel prices leaving only Apparel to be considered a truly moderate (and even falling) essential consumer cost.

Conspicuous Correlation: October 2007

Today, the Commerce Department released their monthly Retail Sales Report for October which continued to show an interesting and, with some pretty significant revisions to past results, even more significant correlation between declining consumer spending, particularly on discretionary items, and the decline in home values.

As in past months, I have isolated the primary discretionary retail sales categories into a single “discretionary” retail sales series, and then charted the year-over-year percentage changes since 2000.

I then added the year-over-year percentage changes of the S&P/Case-Shiller Composite index which broadly and accurately tracks single family home prices using data from Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington DC.

As a result of reader feedback (hattip Deejayoh) I have modified the approach of merely “eyeballing” the presumed correlation and instead used a Pearson correlation to provide a true statistical view of the data.

The result is a reasonable and even significant correlation between the deceleration, and now outright decline, of home prices and a deceleration and subsequent decline in discretionary consumer spending.

That said, the original correlation that seemed nearly perfect earlier in the year is now becoming lees correlated as home prices continue to erode and discretionary retail sales generally remain flat.

Again, I have updated the analysis by using a 3 month moving average for both the CSI series as well as the discretionary retail sales series.

The CSI is calculated monthly based on home sales that could have been settled as far back as three prior months so the smoothing should serve to better align each series.

Keep in mind that the analysis is STILL assuming completely coincident changes to home values and to consumer spending which is likely not a good assumption as most homeowners would likely pull back on spending after the realization that home values have declined.

In a upcoming post (with the next installment of the S&P/Case-Shiller data) I will attempt to shift the housing price decline further into the future (or spending into the past) following an assumption that declining prices are “leading” the declining spending but for now the correlation on the rates of change are still significant.

First, in order to get a sense of the original presumed correlation, take a look at the chart below showing the year-over-year percentage change to both the S&P/Case-Shiller Composite Index (measuring home price change) versus my “discretionary” retail sales index (measuring retail sales change).

Note that the chart shows that during the period from January 2001 to June 2003 retail sales faltered a little as the effects of the dot-com recession worked to dampen spending but that housing remained at exceptional rates of appreciation.

Notice also that from July 2003 to January 2006 both measures show exceptional, and possibly related or correlated growth that then seemed to also decline in tandem in early 2006 with the retail sales component having generally remained either negative or dampened similar to the rates seen during the last recession.

Next, let’s expand the chart a bit to include the full range of available data starting in January 1993 and running all the way through the latest month where both series have data points in July 2007.

Notice that in general, the rate of change of the two series do not appear to be very well correlated and, in fact, that during the tail end of the last housing recession in 1993, retail sales was growing strongly while home appreciation floundered along the bottom until 1997.

Also note that while growth (or lack thereof) of retail sales was clearly dampened during the dot-com recession, home price appreciation seems to have been little effected.



The final charts attempt to correlate the year-over-year rates of change of the underlying data series and 3 month moving average of those series.

As you can see there is little consistent correlation between the rates of change of these series but that having been said, the best correlation to date has been in the trend seen since 2006.

Although the correlation has weakened a little as home prices continue to slide and retail sales has at worst flattened, this current existing correlation would be interesting to watch over the coming months.

If a measurable pullback continues to occur in discretionary retail sales, this correlation will persist, leaving us to possibly conclude that there is a direct effect between the latest decline in home values and consumption of discretionary items.

The Almost Daily 2¢ - Storms a Brewin’

I think it’s safe to say that we have reached yet another turning point in the housing decline and its effect on the economy as a whole.

Even with the tremendous mortgage-credit turmoil and the emergency Fed actions seen in August, traditional consensus held firmly to the notion of “containment”, unwilling to accept that the housing bust would impact the consumer to an extent that might prove recessionary.

But as we can now see in the latest sentiment surveys, consumers are very clearly acknowledging pain specifically from declining housing wealth and more importantly, expecting more in the future.

This represents the continuation of what has been a consistent downshift in confidence that after having, in many ways, reached a crescendo during the summer of 2004, declined precipitously ever since.

This is a key point as it highlights the importance that people’s perception, sentiment and psychology has on a market and an economy.

Remember that during the summer of 2004, although there were some warnings from bearish economists and even some early bloggers, there was barley any real concern about the stability of the housing and mortgage markets on the part of the average consumer.

In the summer of 2004 interest rates were low, credit availability was tremendously high, jobs were strong, and sentiment and confidence were continuing to rise.

Then… something changed.

The nation’s housing market reached a peak in construction spending and the pace of home price appreciation on a year-over-year basis.

Not long after that, approximately one more selling season, existing home sales followed suit with the beginnings of a simultaneous surge in new and existing home inventories.

As we now know, this was the principle turning point in the housing mania and it was NOT brought about by a weakening economy and job market but instead likely a collective psychological shift.

The mania broke and now we are well into the aftermath.

Today we are just seeing the early signs of a substantive spillover of the housing decline and its resultant turmoil onto the consumer.

With many retailers currently reporting a pullback on spending, especially for discretionary goods, and expectations for the weakest holiday season in the last five years, we may now be at a significant turning point for the consumer.

Conspicuous Correlation: September 2007

Last Friday, the Commerce Department released their monthly Retail Sales Report for September which continued to show an interesting correlation between declining consumer spending, particularly on discretionary items, and the decline in home values.

As in past months, I have isolated the primary discretionary retail sales categories into a single “discretionary” retail sales series, and then charted the year-over-year percentage changes since 2000.

I then added the year-over-year percentage changes of the S&P/Case-Shiller Composite index which broadly and accurately tracks single family home prices using data from Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington DC.

As a result of reader feedback (particularly by Deejayoh) I have modified the approach of merely “eyeballing” the presumed correlation and instead used a Pearson correlation to provide a true statistical view of the data.

The result is a reasonable and even significant correlation between the deceleration, and now outright decline, of home prices and a deceleration and subsequent decline in discretionary consumer spending.

That said, the original correlation that seemed nearly perfect earlier in the year is now becoming lees correlated as home prices continue to erode and discretionary retail sales generally remain flat.

This month I have updated the analysis by using a 3 month moving average for both the CSI series as well as the discretionary retail sales series.

The CSI is calculated monthly based on home sales that could have been settled as far back as three prior months so the smoothing should serve to better align each series.

Keep in mind that the analysis is STILL assuming completely coincident changes to home values and to consumer spending which is likely not a good assumption as most homeowners would likely pull back on spending after the realization that home values have declined.

In a upcoming post I will attempt to shift the housing price decline further into the future (or spending into the past) following an assumption that declining prices are “leading” the declining spending but for now the correlation on the rates of change are still significant.

First, in order to get a sense of the original presumed correlation, take a look at the chart below showing the year-over-year percentage change to both the S&P/Case-Shiller Composite Index (measuring home price change) versus my “discretionary” retail sales index (measuring retail sales change).

Note that the chart shows that during the period from January 2001 to June 2003 retail sales faltered a little as the effects of the dot-com recession worked to dampen spending but that housing remained at exceptional rates of appreciation.

Notice also that from July 2003 to January 2006 both measures show exceptional, and possibly related or correlated growth that then seemed to also decline in tandem in early 2006 with the retail sales component having generally remained either negative or dampened similar to the rates seen during the last recession.

Next, let’s expand the chart a bit to include the full range of available data starting in January 1993 and running all the way through the latest month where both series have data points in July 2007.

Notice that in general, the rate of change of the two series do not appear to be very well correlated and, in fact, that during the tail end of the last housing recession in 1993, retail sales was growing strongly while home appreciation floundered along the bottom until 1997.

Also note that while growth (or lack thereof) of retail sales was clearly dampened during the dot-com recession, home price appreciation seems to have been little effected.


The final charts attempt to correlate the year-over-year rates of change of the underlying data series and 3 month moving average of those series by using a moving Pearson's correlation to determine the degree of correlation.

As you can see there is little consistent correlation (negative to low positive indicates no correlation, 50, 80 to 100 indicate good, strong to perfect correlation) between the rates of change of these series but that having been said, the best correlation to date has been in the trend seen since 2006.

Although the correlation has weakened a little as home prices continue to slide and retail sales has at worst flattened, this current existing correlation would be interesting to watch over the coming months.

If a measurable pullback continues to occur in discretionary retail sales, this correlation will persist, leaving us to possibly conclude that there is a direct effect between the latest decline in home values and consumption of discretionary items.

Correlating the Correlation

For several months now I have been producing a regular post entitled “Conspicuous Correlation” that demonstrated an apparent relationship between the decline in home prices and a near simultaneous pullback in the retail sales of the most discretionary items.

While that post generally “eyeballed” what seemed to be a fairly obvious relationship, I’d like to expand the analysis (hattip Deejayoh for proposing the concepts found below) a bit in order to present a more complete representation of the correlation as well as setting the stage for future “Conspicuous Correlation” posts.

First, in order to get a sense of the original presumed correlation, take a look at the chart below (click for larger version) showing the year-over-year percentage change to both the S&P/Case-Shiller Composite Index (measuring home price change) versus my “discretionary” retail sales index (measuring retail sales change).

Note that the chart shows that during the period from January 2001 to June 2003 retail sales faltered a little as the effects of the dot-com recession worked to dampen spending but that housing remained at exceptional rates of appreciation.

Notice also that from July 2003 to January 2006 both measures show exceptional, and possibly related or correlated growth that then seemed to also decline in tandem in early 2006 with the retail sales component having generally remained either negative or dampened similar to the rates seen during the last recession.

So this frames the heart of the matter.

Did the exceptional growth of housing values spill over to the consumption of discretionary items and then as the housing tide turned did it spill over again but in reverse?

Anecdotally, I think, we would probably all be pretty comfortable with assuming this correlation exists as we have all likely witnessed some aspect of the cash out refinancing and other related activities resulting from the housing boom but let’s see if a more complete statistical correlation exists to hang our hat on.

Next, let’s expand the chart a bit (click for much larger version) to include the full range of available data starting in January 1993 and running all the way through the latest month where both series have data points in July 2007.

Notice that in general, the rate of change of the two series do not appear to be very well correlated and, in fact, that during the tail end of the last housing recession in 1993, retail sales was growing strongly while home appreciation floundered along the bottom until 1997.

Also note that while growth (or lack thereof) of retail sales was clearly dampened during the dot-com recession, home price appreciation seems to have been little effected.

The next chart (click for larger version) shows the full range of series data (Not year-over-year change… simply the underlying data) for both the “discretionary” retails sales and the S&P/Case-Shiller Composite index starting from 1993, as well as introducing a Pearson’s correlation that calculates the degree of correlation between the two data series.

Note that in this chart, the correlation set for each successive month cumulative staring from January 1993 so although the correlation starts out nonexistent initially, the two measures begin to correlate strongly for the remainder of the dataset.

It’s important to note that I included this chart mostly as an exercise to set up the next several charts and I don’t think that this correlation shows anything of any great importance other than that, over a long period of time, both home prices and retail spending increased.

There is nothing in the chart to suggest that the home price appreciation influenced the increase to retail spending, only that they both increased over the same period.

The next chart (click for larger version) betters the prior by using a 12 month “moving” correlation whereby each successive correlation data point indicates the degree of correlation between the last 12 months of series data.

This chart clearly shows periods of variation where the two series range from closely correlated to no correlated at all.

One feature to note is that the correlation was strong during the mid to late nineties prior to the dot-com recession where both home prices and retail sales grew consistently.

Then during the dot-com recession the correlation fell apart as retail sales were clearly flattened by the downturn and home prices seemed largely unaffected.

Also note that as of late, the correlation has fallen apart again as home prices have declined and retails sales, although having flattened, have not declined.

The final chart (click for larger version) takes a different angle, instead attempting to correlate the year-over-year rates of change of the underlying data series rather than the series themselves.

As you can see there is little consistent correlation between the rates of change of these series but that having been said, the best correlation to date has been in the trend seen since 2006.

Although the correlation has weakened a little as home prices continue to slide and retail sales have at worst flattened, this current existing correlation would be interesting to watch over the coming months.

If a measurable pullback continues to occur in discretionary retail sales, this correlation will persist, leaving us to possibly conclude that there is a direct effect between the latest decline in home values and consumption of discretionary items.

Ill update the “Conspicuous Correlation” post to reflect this better assessment of the correlation so be sure to check back as the new retail sales numbers are being released on Friday and they will definitely make an impact one way or the other.

Conspicuous Correlation: August 2007

Today, the Commerce Department released their monthly Retail Sales Report for August which continued to show an interesting correlation between declining consumer spending, particularly on discretionary items, and the decline in home values.

As in past months, I have isolated the primary discretionary retail sales categories into a single “discretionary” retail sales series, and then charted the year-over-year percentage changes since 2000.

I then added the year-over-year percentage changes of the S&P/Case-Shiller Composite index which broadly and accurately tracks single family home prices using data from Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington DC.

The result is a significant correlation between the deceleration, and now outright decline, of home prices and a deceleration and subsequent decline in discretionary consumer spending.

The first chart (click for larger version) shows the complete discretionary series comparison from January 2000 to the latest reported months of 2007.

Note the precipitous deceleration and decline to home prices starting in January 2006 and the very well correlated decline in “discretionary” retail sales.

Also note that the latest decline to retail sales is easily the most significant and sustained seen since 2000, handily surpassing the decline that occurred during and preceding the 2001 recession.

The second chart (click for larger version) simply isolates the results from January 2006 in order to provide a clearer view.

Conspicuous Correlation: July 2007

Today, the Commerce Department released their monthly Retail Sales Report for July which continued to show an interesting correlation between declining consumer spending, particularly on discretionary items, and the decline in home values.

As in past months, I have isolated the primary discretionary retail sales categories into a single “discretionary” retail sales series, and then charted the year-over-year percentage changes since 2000.

I then added the year-over-year percentage changes of the S&P/Case-Shiller Composite index which broadly and accurately tracks single family home prices using data from Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington DC.

The result is a significant correlation between the deceleration, and now outright decline, of home prices and a deceleration and subsequent decline in discretionary consumer spending.

The first chart (click for larger version) shows the complete discretionary series comparison from January 2000 to the latest reported months of 2007.

Note the precipitous deceleration and decline to home prices starting in January 2006 and the very well correlated decline in “discretionary” retail sales.

Also note that the latest decline to retail sales is easily the most significant and sustained seen since 2000, handily surpassing the decline that occurred during and preceding the 2001 recession.

The second chart (click for larger version) simply isolates the results from January 2006 in order to provide a clearer view.