Friday, April 14, 2023

March real retail sales lay an egg, suggest downturn in nonfarm payrolls by the end of summer


 - by New Deal democrat 

After a quiet early part of the week, today we get a deluge of data: retail sales and industrial production for March, and total business sales for February. Because real total business sales are one of the 4 big coincident indicators tracked by the NBER, and because retail sales are about 1/3rd of the total, and industrial production helps us estimate the rest, after the data comes out I can give estimates of the *real,* not just nominal, values for both February and March.

But first, retail sales . . . Which laid an egg, as they do once or twice a year.

In this case nominal retail sales declined -1.0% for the month. Because consumer prices increased less than 0.1% in March, real retail sales also were down -1.0%. Combined with a -0.6% decline in February, real retail sales have taken back close to 2/3’s of the big January gain, and are down -3.0% from their March 2021 peak:

YoY real retail sales are down -1.9%, the biggest decline since the pandemic lockdown. As I write nearly every month, they are a noisy but time-tested short leading indicator (/2) for jobs. Here is the updated look at that comparison:

YoY nonfarm payrolls have declined about 1/3rd, from +4% to +2.7% in the past 6 months. At this rate they will have declined by more than 1/2 of that +4% in 3 or 4 months, which by my rule of thumb means it is likely there will be a seasonally adjusted actual decline in monthly payrolls by the end of this summer.

UPDATE: Checking the historical record all the way back to 1948, a YoY decline in real retail sales of -1.9%, our current value, has *always* occurred at the outset of or during a recession with the only exceptions of 1951-52, and the months of September 1987 and October 2002.