Smoking the Green Shoots of Recovery? Same Store Sale Arithmetic at the WSJ

The WSJ eagerly touted the good news on September retail sales with the headline: "Clouds Break as September Retail Sales Rise." The good news touted in the article is that an index of same store sales for 30 major retail chains came in 0.9 percent higher in September of 2009 than September of 2008. (The index excludes Wal-Mart, which accounts for almost as much sales volume as the other 30 chains combined.)

There are two reasons why this increase is less promising than it may appear. First, September 2008 was the month of the financial panic following the collapse of Lehman. Sales fell sharply that month. It is much easier to show a year over year gain measured against a very weak month than against one of the months that predated the September falloff.

The second reason why this gain is less positive than it may initially appear is that the chains opened few new stores in the last year and may have even closed some stores. In addition, many smaller retail outlets also went out of business in the last year. This means that the stores open at least one-year that comprise this index are likely to be a larger share of the total retail market in September of 2009 than in September of 2008.

For these reasons, the modest uptick in year over year same store sales should not be taken as evidence that recovery is on the way.

--Dean Baker