Tuesday, September 5, 2017

Comparing motor vehicle sales vs. real retail sales per capita

 - by New Deal democrat

I know, real clickbait-y headline, right? 

This week is about the lightest for economic data I've ever seen, with the discontinuance of the Labor Market Conditions Index, and JOLTS not due until Tuesday next week. So - hint - probably light posting.

But there are several trends that bear writing about, including the state of the consumer.  Consider this post a prequel to that broader subject.

In the past, I've identified motor vehicle sales and real retail sales per capita as somewhat long leading indicators. Motor vehicle sales can peak several years before a recession, and real retail sales per capita perhaps 12 months before, each with a lot of variation.  Of course, motor vehicle sales are a component of real retail sales, and have tended to "plateau" for lengthy periods in expansions, but is there any rhyme or reason as to which peaks first?  That's what I wanted to check.

Real retail sales data, in its current and prior iterations, goes back 70 years! That's a pretty rich monthly data source. Unfortunately, motor vehicle sales, by contrast, started to be reported in the late 1970s, and so includes only 5 complete business cycles. Thus any relationship has to be very lightly weighed. But it's still worth looking at.

Both can be noisy on a month to month basis, so I have averaged each quarterly. Below are real retail sales per capita (blue, left scale), and motor vehicle sales (red, right scale) divided over the last 40 years:

On a quarterly basis, in the last 5 business cycles, real retail sales per capita have never peaked before motor vehicle sales. Both peaked together twice, and twice motor vehicle sales peaked two quarters before.  In one case (the 1980s), motor vehicle sales peaked about 3 years before real retail sales per capita!

Here's a look at the monthly data for the last few years through July (so the 16.1 million August motor vehicle sales number isn't included):

If motor vehicle sales have made their peak for this business cycle (I think they have), that at least is consistent with the last five cycles. Should the three month moving average of real retail sales per capita decline for several months, I would consider that of more significant importance now (vs. earlier in this cycle) concerning the state of the consumer.