- by New Deal democrat
Consumption leads employment, and retail sales are the most timely monthly indicator of consumption. Indeed, population-adjusted real retail sales in the past have tended to turn negative one year or more before a recession has begun.
In June, nominally retail sales rose a strong 0.6%. But because consumer prices rose 0.3%, real retail sales increased 0.3%.
But hold the celebration, because even with this increase real retail sales in June were among the 4 weakest readings in the past 8 months, and are below all of their readings during the 4th Quarter of last year, as well as the front-running of tariffs that was apparent earlier this year:
In other words, the trend is one of the stagnation of growth.
With several exceptions, most notably in 2022-23, in the past 75 years whenever real retail sales turned negative YoY, a recession was about to begin or had just begun. At present real retail sales are higher YoY by 1.2%, so there is no sign of any imminent downturn in the economy:
Even adjusted for population, real retail sales remain higher YoY by 0.6%, which in ordinary times would suggest no recession in the next 12 months:
Of course the whole issue of tariffs makes these not ordinary times.
But to reiterate, consumption leads employment. So here is the updated graph of real retail sales YoY, together with real personal consumption of goods (thin, light blue), compared with nonfarm payrolls (red):
Based on historical experience, real retail sales suggest that YoY jobs growth should continue to decelerate in the coming months to a meager 0.6%. And even restricting ourselves to the past 40 years, such a small increase in employment has only occurred during recessions:
So, to loop this back to my discussion of this morning’s very good initial jobless claims report, if the apparent slowing in consumption as shown by real retail sales continues much longer, I would not expect benign jobless claims reports to last much longer.
