August 07, 2004

Why Oh Why Can't We Have a Better Press Corps? (Irwin Stelzer/Weekly Standard Edition)

I commit the mistake of following a link from Daniel Drezner* and wind up at the Weekly Standard, reading Irwin Stelzer, who writes:

The Weekly Standard: Wal-Mart, which accounts for about 8 percent of all non-auto retail sales in the United States, reports that net sales for the four-week period ending July 30 increased by 10.9 percent over the same four weeks in 2003. Even Target, which has been struggling, reported an 8.8 percent increase in July sales over last year's levels. These figures bode well for the important back-to-school sales of clothes, computers, and bedding...

When everyone else besides Stelzer uses Wal-Mart as a barometer of consumer spending, they use Wal-Mart's reports of same-store sales: what's the change in sales for those stores that are open now and were open a year ago? The Wal-Mart same-store sales number is not a 10.9% increase over last year, but a 3.2% increase. Lop off a couple of percentage points for inflation, and you realize that Wal-Mart's shoppers are only spending 1% more in real terms this year than last year.

That's not a good number at all. That's an awful number. That doesn't "bode well" for back to school sales.

Stelzer pretends that it's a good number by "forgetting" to tell his readers that 7.7 percentage points of that 10.9 percent increase in Wal-Mart sales come from new stores that Wal-Mart has opened in the past year, and are thus the result not of the expansion of consumer spending but of the expansion of the Wal-Mart company.

Once again, I am driven to ask a question: There are hordes of right-wing economists with excellent prose-writing skills and high ethical standards. They would be eager to write for the Weekly Standard. They would write pieces that did not try to gull the magazine's readers--that would inform and educate its readership and raise its (low) credibility.

So why does Irwin Stelzer still have his perch?


*I should note that Drezner is blameless here. The link is an "even Irwin Stelzer" link--a rhetorical mode that asserts the existence of a consensus by showing that not even the most craven and biased of commentators dare contradict it.

Posted by DeLong at August 7, 2004 09:44 AM | TrackBack | | Other weblogs commenting on this post
Comments

While complaining about the right wing you just made a mistake that I have been screaming about for year. If you are going to adjust the Wal Mart same store sales data for inflation at least check on what the inflation rate is. The y/y ch in the department store deflator is now runing at about zero -- as compared to about minus four persent over the last decade.

When I really got upset about this was a couple of years ago when I saw Federal Reserve members
quoting retail sales same store data of about 2%-3% and deflating it by the overall CPI to conclude such sales were flat. When in reality the department store deflator was about -4 and real sales were really running at about 6% rather than being flat.

See it it not just the press that does not do its job.

Posted by: spencer on August 7, 2004 10:16 AM

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Clever Spencer, and thanks for the note which I just found.

Posted by: Anne on August 7, 2004 10:27 AM

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Wow, there's a department store deflator? Spencer, do you have a link for how it is calculated? This is a hard enough number to solve for the economy in aggregate; i'm inherently suspicious of something as seemingly fine-tuned as a "department store deflator."

(Which doesn't mean that it's not a perfectly valid number calculated by perfectly valid means; it just means "trust but verify.")

Posted by: howard on August 7, 2004 10:31 AM

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Worth another read -

Spencer:

There is no evidence that any Fed chairman but Volcker based policy on anything but current economic conditions. The basic formula (7.5 plus inflation less the unemployment rate )explained almost all fed funds rates moves since the 1950s except under Volcker and even during his term it got the direction of changes or turning points right.

Question>> If following this policy rule generated inflation in the 1960s and 1970 and holding rates above the implied level in the 1980s generated deflation, why has going back to
the same rule in the 1990s also generated disinflation? lags, international developments,
inflation expectations, luck ???

Within the employment rate, hours worked rose 0.3% and average weekly earnings were up 0.6%. Do not overreact to the headline number, the economy is weakening but not collapsing. The Fed will raise rates a quarter point and then wait till December to raise them 50 points.

Meanwhile as bonds rallied the dollar collapsed.

Posted by: Anne on August 7, 2004 10:58 AM

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http://bigpicture.typepad.com/

Barry L. Ritholtz:

"Of the 3.2 million reemployed displaced workers who lost full-time wage and salary jobs during the 2001-03 period, 2.6 million were working in such jobs in January 2004. (The remaining reemployed workers had part-time wage and salary jobs or were self-employed or unpaid family workers.)

Fifty-seven percent of workers who were displaced from full-time wage and salary jobs and who were reemployed in such jobs had earnings that were lower than those on the lost job. About one-third experienced earnings losses of 20 percent or more."

Posted by: Anne on August 7, 2004 11:09 AM

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Why would the Federal Reserve wish to slow the economy early next year, when the economy is slowing already and there is almost no price pressure due to labor cost increases? The 10-year treasury note yield is at 4.2%. Then, why not wait before raising interest rates?

Posted by: Anne on August 7, 2004 11:29 AM

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Retail deflator from from the BEA. There are two retail sales reports. The one the press pays attention to is put out by census and it is only of nominal sales.
The second is by BEA that they compile as part of putting together the GDP data. It reports both nominal and real retail sales as well as two deflators for the various categories of retail sales.

I do not know how to link for the BEA data. It is not published and I get it from my data vendor -- Haver Analytics. Sometimes I think I am the only person that uses this data. Several times Haver has failed to update the real data
and every time I have called them about it I was always the only person that complained.

I use the real retail sales data to calculate an estimate of retail productivity -- real sales divided by retail hours worked. In regression models of the relative performance of the S&P index of retail stocks this retail productivity estimate is the single most important variable.
Ps -- this estimate shows that retailers accounted for more of the recent productivity improvement than manufacturing. I found it reassuring that the people that do "growth accounting" came to the same conclusion.

Also department stores as part of calculating their earnings under standard accounting rules have to estimate the "real" value of their inventories. To assist them in this the BLS publish a retail inventory valuation index.
I think you can find it at the BLS homepage.

Posted by: spencer on August 7, 2004 12:32 PM

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Because the Fed has access to the unmassaged numbers and knows that the Republicans are going to lose the election. They have to start a depression now so the Republicans don't lose control of Congress in 2006.
Let's see if they do better with the rates now than they did back in 2000. They really shot themselves in the foot back then. Starting a recession and stock market collapse to get rid of Gore turned out to be long lasting enough to remove Bush, too.

Posted by: walter willis on August 7, 2004 12:33 PM

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For those of us who barely remember statistics from high school, can someone, Spencer or Anne or anyone else who knows, please explain what the deflator is an d the reasoning behind it? Thanks very much for the help.

Posted by: Greg in Wa on August 7, 2004 12:39 PM

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Suppose actual sales revenue grows by 5%, but inflation for the sales in question runs 2%. Then, real sales revenue growth is 3%.

Posted by: Anne on August 7, 2004 12:53 PM

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Spencer, thanks for the explanation; the things you learn. I'll have to do a little further digging into the BLS.

Greg in Wa, just to add onto Anne's concise explanation: you always want to know the "real" number (meaning with inflation factored out), because that tells you what is really happening, in the same way, putting aside Spencer's critique of our host's original comment, you always want to compare same-store sales (so that new stores are factored out). Otherwise, it's very easy to fool yourself about what's really happening....

Posted by: howard on August 7, 2004 02:02 PM

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Of course Brad is assuming that new Walmarts do not cannibalize sales from existing ones, because if they did then the 1% he calculates is just a lower bound on Walmart's real same-store growth. And of course that is before applying Spencer's point about using the correct deflator.

Posted by: ac on August 7, 2004 02:05 PM

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Do we need the department store deflator or the Walmart deflator? It seems to me that the latter would actually be easier to track.

Posted by: ogmb on August 7, 2004 02:10 PM

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As to the question why don't better writers have these positions...maybe because when push comes to shove they don't toe the party line if the numbers don't support it? It's a very cynical view point and I would hate to just drop some snide comment like, "because they have ethical standards." But it is getting harder and harder to answer questions like these.

Posted by: Pat on August 7, 2004 02:14 PM

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Where are these honest conservative economists? Not too thick on the ground. But hey did you see William Niskanen on CNNfn yesterday? Probably not. The 1st time I heard an R giving an off-message take on the economy. To be sure he was pushing a monetarist solution to a problem that the Rs have to fix in 8 weeks. Perhaps Niskanen knows the Bush crowd is toast and wants to be in the debate in '05. No one will escape this Administration with their reputation intact or the right to pontificate on economic policy or anything else in '05.

Posted by: wren on August 7, 2004 02:24 PM

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"...Suppose actual sales revenue grows by 5%, but inflation for the sales in question runs 2%. Then, real sales revenue growth is 3%."

Good example.

It may also be helpful to remember that the reason Economists adjust nominal sales (the physical amount of sales multiplied times their current prices) for changes in the prices of goods sold (real sales) is to make it possible to determine the actual physical amount or volume of goods sold.

Real vs nominal accounts for a fair amount of the misunderstanding that pervades contemporary press reporting of economic subjects. Unfortuately, since very few mass communication students take enough economics courses while in college to become literate in economics, this problem is likely to continue.

Posted by: bncthor on August 7, 2004 02:29 PM

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Thanks Howard.

The sense you have of a moderate inflation and sluggish growth American economy increasingly troubles me.

Posted by: Anne on August 7, 2004 02:33 PM

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ogmb - The Wal-Mart deflator - very good. Seems fairly simple to calculate an aggregate Wal-Mart number - they know there average price increase/or decrease, as the case may be.

However, with due respect, the big issue that Prof. DeLong properly identifies, is same store sales. The idea of cannibalization having a significant effect is unlikely, and would be offset by Wal-Mart's effect on competitor's in competing markets.

Posted by: Armando on August 7, 2004 02:34 PM

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What little same-store growth Wal-Mart can claim could easily be at the expense of higher-priced retailers. If legions of customers are buying their kids' sneakers at Wal-Mart instead of Foot Locker, it's hard to see how that would be a positive trend indicator for the economy as a whole. Rather, it would suggest lower disposable income, and lower consumer confidence.

Posted by: son volt on August 7, 2004 02:35 PM

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and, some of us don't take enough spelling. I meant unfortunately, not unfortuately.

Posted by: bncthor on August 7, 2004 02:36 PM

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Anne, i keep hoping someone will come up with a good reason that i'm wrong: a driver for growth, for instance, or a reason to believe that inflation isn't going to increase....

Posted by: howard on August 7, 2004 04:53 PM

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I live in philly. in 1999 i would buy shirts for 30 bucks from today's man. In 2004 i buy 13 dollar shirts from k-mart. Current indicators indicate that the bush/kmart economy is on the upswing.

.

Posted by: bianco on August 7, 2004 08:11 PM

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I don't know about the idea of using Walmart as an indicator.

Where I'm from (and maybe I'm just spoiled rotten) we see Walmart as an inferior good.

As such, an increase in Walmart sales would actually be a negative sign for the economy.

eg; we can't afford the good stuff at the mall or department store so we slum it over at Walmart.

Posted by: avedis on August 7, 2004 09:52 PM

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How would anyone measure Wal-Mart's cannibalization of other stores? I wonder if it even is possible.
One would need to seperate the number of 'new' shoppers from the people who shop at the store on a regular basis. Then one needs to make a distinction between customers just entering the market and those who usually and previously frequented other stores. I just do not see how.

Posted by: linnen on August 7, 2004 10:35 PM

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There are other Walmart deflators and inflators on sales.
1. As other stores are driven out of business by Walmart's lower prices (and ability to depress prices from suppliers caused by their large market share), that will increase Walmart same store sales.
2. As products are depressed in price by Walmart they are also depressed in quality. It's not so much that the very low priced hair dryer I got from Walmart was dead on arrival, it was that while it said it had two heat and two fan settings on two places on the box, it meant that it had two settings, period, that you couldn't use it as a air blower only, but as a high flow hot air setting and a low flow hot air setting. I think that's reducing the parts count a tad much.
What was really alarming was that you were supposed to use a screwdriver to make sure it had the correct voltage for your country. I had to bring it back and tell them to let the manager know what he was asking his American customers to do. Maybe in some other countries the customers can be trusted to know if they have 120 or 220 voltage, but in America they aren't really clear on the difference between AC and DC.
Figure on the cost of my time to return it, and it's cheaper at Target.

Posted by: walter willis on August 8, 2004 01:10 AM

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Even by Spencer's calculations, real sales growth in Walmart (using dept store deflator) used to be c.6% and is now c.3%.

So Brad's conclusion stands:
That's not a good number at all. That's an awful number. That doesn't "bode well" for back to school sales.

Posted by: Otto on August 8, 2004 07:27 AM

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Itís true that Walmart sells some lower quality products, but they also sell the same stuff you buy elsewhere. But they sell it for less. I save about $3 per bottle of Gaviscon over exactly the same thing at Rite Aid. Ditto for a lot other drugstore products. But watch out for their prescription department they are much higher than Costco (the lowest prices on prescription drugs). I donít understand this Walmart bashing. They provide a valuable resource for poorer people. But I even meet well-paid friends shopping there because they want to save money.

Posted by: A. Zarkov on August 8, 2004 08:52 AM

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Because

1. Walmart breaks employment laws, thus creating more poor people.

2. Walmart sells inferior merchandise and inflated prices and subsidizes the costs of name brand products so that people will shop there buying the name brand products, which are low margin, and then staying to buy the imported inferior products which are high margin.

3. Walmart drives companies out of business by predatory tactics, up to, and including tortuous interference in business.

Walmart has done some things which are good for retail, however, like WorldCom, they are distorting retail because they have been allowed to break the law, use taxes to subsidize their business, and then take that extra edge and drive others out of business.

Walmart accounts for 8% of something else - 8% of our trade deficit. In fact, Walmart imports half as much from china, as the rest of the economy exports to china.

Posted by: Stirling Newberry on August 8, 2004 10:10 AM

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deflator - simple definition.

(what it would have cost to buy what was produced last year, this year)/(what cost to buy what was produced this year)

Posted by: Stirling Newberry on August 8, 2004 10:13 AM

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deflator - simple definition.

(what it would have cost to buy what was produced this year, last year)/(what cost to buy what was produced this year)

(Got signs reversed, sorry)

Posted by: Stirling Newberry on August 8, 2004 10:14 AM

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newbury:

Your list sounds like a legal pleading or someoneís talking points. I donít want to defend Walmart because I donít know the facts surrounding your charges against the company. However, I am skeptical or your statement (2):

ďWalmart sells inferior merchandise and inflated prices and subsidizes the costs of name brand products so that people will shop there buying the name brand products, which are low margin, and then staying to buy the imported inferior products which are high margin.Ē

As a sometimes Walmart shopper, I donít get that impression at all. You seem to be saying that most shoppers are too stupid to differentiate between good quality merchandise that sells at a significant discount from other allegedly overpriced shoddy goods. Iím thankful that I can avoid list price at places like Rite Aid (whose CEO was sent to jail) by having access to a Walmart. I guess some shoppers are that stupid, but as the old saying goes: ďA sucker and his money are soon parted.Ē

Posted by: A. Zarkov on August 8, 2004 01:18 PM

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If Wal-Mart sales overall are up 10.9% while its same-store sales are up only 3.2%, then as I figure it, 7.2/110.9 = 6.5% of Wal-Mart sales seem to have come from new stores. Since retail sales overall were up nowhere near 10.9%, and Wal-Mart is said to account for about 8% of all retail sales, they must have increased their market share by about 0.5 percentage points just by expansion into new areas. I wonder how long they can maintain that pace?

Posted by: jm on August 8, 2004 06:43 PM

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Argggh. Should be 7.7/110.9 = 6.9%.

Posted by: jm on August 8, 2004 06:47 PM

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Zarkov -

Besides the fact that when Wally World moves into a town it decimates the local small businesses, and takes the money out of the local economy, they also do the same thing to their suppliers. Here's a good start into the evil empire - http://www.businesspundit.com/archives/000859.html

Posted by: Greg in WA on August 8, 2004 07:03 PM

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Zarkov -

Besides the fact that when Wally World moves into a town it decimates the local small businesses, and takes the money out of the local economy, they also do the same thing to their suppliers. Here's a good start into the evil empire - http://www.businesspundit.com/archives/000859.html

Posted by: Greg in WA on August 8, 2004 07:03 PM

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Zarkov -

Besides the fact that when Wally World moves into a town it decimates the local small businesses, and takes the money out of the local economy, they also do the same thing to their suppliers. Here's a good start into the evil empire - http://www.businesspundit.com/archives/000859.html

Posted by: Greg in WA on August 8, 2004 07:03 PM

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sorry about the post - the screen was just sitting there...

Posted by: Greg in WA on August 8, 2004 07:07 PM

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Greg:

Iím far from an expert on the economics of retail marketing, but it seems to me that low prices are a net benefit to the community even if the low prices puts some small operators out of business. I heard the same argument eons ago in New York City when the super markets started to appear (like A&P). Some butchers and bakers and candlestick makers did go out of business, but many didnít. For example Zabars on the Upper West Side of Manhattan has survived to this day, and has a very profitable business as a high quality specialty food market.

I confess that I used to have an anti-big-box store attitude myself, but the Bay Area cured me of that. Many small merchants around here (especially in Berkeley) have such a lousy attitude towards their customers that I often find the big-box guys a relief. When I return something to Costco or Home Depot or Walmart, they take it back without an argument. Sometimes this anti-big-box attitude is really counter-productive to the community. An old family owned hardware and building supply store in San Francisco called ďGoodmanísĒ went out of business something like ten years ago leaving behind a large ugly abandoned building in a run down neighborhood. Home Depot wanted to build a store there, which would have really improved the area. But no, the elitist left wing types in the neighborhood fought it tooth and nail because they didnít want the few little hardware stores in the area to suffer.

Posted by: A. Zarkov on August 8, 2004 10:13 PM

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"Once again, I am driven to ask a question: There are hordes of right-wing economists with excellent prose-writing skills and high ethical standards. They would be eager to write for the Weekly Standard. They would write pieces that did not try to gull the magazine's readers--that would inform and educate its readership and raise its (low) credibility."

I think I really like this paragraph, but I'd like to ask if you really mean it, or if you're being facetious? It's pretty clear you're no fan of the Republicans right now (hard to blame anyone for that, really), and I get the impression you're definitely more left-wing than right-wing. Do you believe there can be right-wing economists with intellectual rigor? Some left-wing folks seem to believe that the right side is, at best, lying to themselves; and at worst, outright lying to everyone. I'd like to think that each side can honestly believe their side is right and still respect people on the other side; where do you fit in this situation?

(I'm really asking these questions, not just trying to make some kind of point. I'd like to think people can disagree but not think of their opponents as "evil", but nowadays I don't see a lot of people who seem to feel that way.)

Thank you.

Posted by: Chris Warren on August 9, 2004 04:56 AM

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Chris Warren, someone has written somewhere that the difference between "righter" and "lefter" is rooted in the perception of people nature, righters feel people as untrustable when not unfriendly, lefters feel contrarywise. IIRC rightwingers are propense to have more nightmares than leftwingers.

DSW

Posted by: Antoni Jaume on August 9, 2004 11:57 AM

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Chris Warren, when I was born & raised Republican, I felt the same way about the left. You read Economics in One Lesson by Hazlitt, you think, "Don't those union supporters understand economics? How can anyone support the minimum wage without being ignorant?" Running into people like Brad who were qualified economists and still lefty was one of the big things that changed my mind. So I'm sure there is room for honest disagreement and you will run into credible Republican economists someday.

Posted by: Noumenon on August 9, 2004 10:06 PM

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"Once again, I am driven to ask a question: There are hordes of right-wing economists with excellent prose-writing skills and high ethical standards. They would be eager to write for the Weekly Standard. They would write pieces that did not try to gull the magazine's readers--that would inform and educate its readership and raise its (low) credibility."

These hordes with the excellent writing skills and high ethical standards (at least outside of Goldman Sachs given John Youngdahl) are mostly working on Wall Street, making in a month what a college professor makes in a year, and interacting with top investors. Most of them are not eager to give that up to write for a barely read partisan magazine.

Posted by: Bill on August 10, 2004 09:59 AM

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