Thursday, December 14, 2023

Real retail sales mildly positive, but still suggest further deceleration in job gains


 - by New Deal democrat

Before proceeding further, I should mention - and should have mentioned as to jobless claims - that we are in that part of the year where seasonality often wreaks havoc, so outsized gains or losses should be taken with a grain of salt.

This is particularly true as to YoY comparisons of retail claims, because last year November and December stunk, and then there was a huge rebound in January. And this morning’s numbers, as well as the next two reports, will be compared YoY with a pretty big whipsaw.

With that out of the way, nominal retail sales increased 0.3% in November. After adjusting for inflation, they increased 0.2%. Meanwhile October was revised down by -0.1%, so the net real gain was only +0.1%. On an absolute scale, real retail sales are still slightly more than -2% below their April 2022 peak, although they have been improving pretty consistently if slowly all this year:

The relative improvement is best shown in the YoY comparisons. The first graph below shows the past 30 years of real retail sales YoY (dark blue), and also real personal consumption expenditures for goods (light blue), which tend to follow a similar trend. Additionally, the YoY gains are /2 for purposes of comparing with employment grains (red):

As I have pointed out many times, real retail sales /2, while noisy, is a very good short leading indicator for the trend in employment. Put another way, consumption leads employment.

Here is the post-pandemic record of the same:

One year ago was one of the very few times that a YoY negative number for real retail sales did not accurately forecast a recession (gas prices going from $5 to $3/gallon, and a general post-pandemic decline in supplier prices can work wonders for the economy!). 

Nevertheless real retail sales continue to forecast some further deceleration in jobs gains in the coming months.