logo
  Join        Login             Stock Quote

Stress-Testing Forecasts For Tomorrow's November Retail Sales Report

 December 12, 2012 11:38 AM


Will tomorrow's retail sales update for November bring pain or pleasure for the increasingly delicate and high-stakes art/science of deciding where the business cycle's headed? October's report was somewhat sobering, thanks to a 0.3% drop in consumption—the first since June. Some of the weakness was blamed on Hurricane Sandy. If so, will November's numbers bounce back after a month of relatively clear skies? Yes, according to the consensus forecast, which projects a handsome 0.4% rise, according to Briefing.com. Sounds good, but that's a bit high relative to a pair of econometric models I routinely us for additional context when considering where the data's headed.

[Related -Sector Detector: Bulls Go Down Swinging, Refusing To Give Up Much Ground]

I crunched the numbers in two ways, using vector autoregression (VAR)autoregressive integrated moving-average (ARIMA) models, both of which also show up in my work with modeling the business cycle and nowcasting US GDP. As for today's retail sales projections, I'm using R software by way of the "forecast" and "vars" packages. These tools optimize the parameters based on the historical data records and so in some degree the resulting projections represent benchmarks for evaluating forecasts from other sources.

[Related -The Bumpy Road Ahead To Policy Normalization]

For the VAR projection of retail sales, I've chosen four data series to search for interdependent relationships: US private sector employment, personal consumption expenditures, disposable personal income, and the University of Michigan Consumer Sentiment Index. By contrast, the ARIMA projection uses only the historical data for retail sales as the basis for looking ahead. Here's how the two estimates compare for estimating the monthly change for November retail sales (in nominal dollar terms):

-0.1% (VAR)
+0.2% (ARIMA)

Averaging the two forecasts gives us a +0.1% estimate. Keep in mind that the confidence intervals for each of these point forecasts is, as usual, wide enough to keep us humble for thinking that the future is clear enough to put a high degree of confidence in one number. The potential for fairly large negative or positive surprises, econometrically speaking, remains substantial.

Nonetheless, my take on the these two forecasts is that we should be a bit more cautious in expecting a strong rise in tomorrow's report compared with the consensus outlook. November is likely to show a modest rebound from October, but I'm not expecting a large upside surprise.
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageSector Detector: Bulls Go Down Swinging, Refusing To Give Up Much Ground

Although the stock market displayed weakness last week as I suggested it would, bulls aren’t going down read on...

article imageThe Bumpy Road Ahead To Policy Normalization

When the dust clears from tomorrow’s Fed announcement, the crowd’s expecting that the slow but persistent read on...

article imageAnalyzing Performance Histories That Might Have Been

The trend in recent years of securitizing more of the world’s market betas offers investors, in theory, read on...

article imageBig Prints in VIX Calls

The CBOE Vix Index is in positive territory on Friday morning as shares in the S&P 500 Index move slightly read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.