Monday, April 16, 2018

Real retail sales very positive. What to watch for next

 - by New Deal democrat

This morning's retail sales report for March was certainly very positive. Nevertheless, there is one aspect of the trend which is a little concerning.

First, the obvious good news. Real retail sales were up +0.7%:

This is in line with the general upward trend. Note that I am discounting somewhat the spike last autumn that was probably related to extraordinary hurricane and wildfire repairs.

The YoY comparisons are healthy as well:

So far, so good.

But, in line with the overarching story that we are late in the expansion, is there anything to look out for? Yes.

In general, large durable purchases wane first. So let's break out real retail sales into motor vehicles and parts (blue) vs. everything else (red), shown quarterly to reduce noise:

Real spending on vehicles declines below zero YoY well before a recession, while real spending on other things (including necessities like food) may not necessarily turn negative at all, although growth certainly declines.

Here is a close-up of the last two years:

Even with today's good reading, retail sales of motor vehicles and parts was only +0.5% YoY during the first quarter. Since part of Q4 2017's spike was related to flooding in the Houston area, the trend in growth certainly looks to be declining. Although the remaining part of retail spending looks very healthy, should motor vehicle related spending turn negative YoY, that would at least be a cautionary "yellow" flag.