Wednesday, November 15, 2023

Real retail sales consistent with continued slow growth, aided by a continuing decline in commodity prices


 - by New Deal democrat

Before I discuss today’s main course of real retail sales, let’s briefly ingest the ours d’oauvres of PPI and a brief update on chained CPI.

The economy has greatly benefitted from the un-kinking of the pandemic supply lines. That continued in October, as commodity prices declined another -1.3%, and finished goods PPI declined -1.9%. From their peaks in June 2022, commodity prices are down -8.8%, and finished goods inputs are down -3.0%:

Both are also down YoY, -3.6% and -0.4% respectively. 

This should feed through into continued deceleration or outright declines in consumer prices.

Speaking of which, here is the update on “sticky core” consumer prices from the Atlanta Fed. These increased less than 0.1% YoY, rounding to 3.0%:

I am sure members of the Fed will seize on this as a reason not to relax their hawkishness.

Turning to retail sales, nominally they were unchanged in October. After adjusting for inflation, they decreased -0.2%. Below I compare them with real personal consumption expenditures through September, both normed to 100 as of just before the pandemic:

Nominally both tend to follow the same path. The difference is in the deflator. Despite the slight decline in October, September was revised +0.2% higher, and the increasing trend since June 2022 has not been broken.

On a YoY basis, real retail sales are down -0.7%, vs. real personal consumption expenditures, which are still increasing. Because real retail sales, although noisy, tend to lead employment by several months, I also show employment YoY:

Real retail sales continue to forecast a continued deceleration in jobs gains. This adds to my suspicion that we will see a gain of less than 100,000 jobs in a report sometime in the next few months.

Finally, both gas and motor vehicles have played important roles in the trend in retail sales. Below I show both of them compared with total retail sales, all normed to 100 as of just before the pandemic:

In real terms, gas sales have slightly rebounded since their lows of June 2022. Motor vehicles were plagued by supply issues, which have supposedly been largely resolved. They rebounded much more sharply since 2022, although in the past few months those gains have stagnated. 

Bottom line: this month’s report remained consistent with continued slow growth.