- by New Deal democrat
Consumer spending is about 70% of the economy, and retail sales is our first wide measure of that spending. This morning’s update for March (still after all these months delayed about a week compared with the schedule before last autumn’s government shutdown) was unsurprisingly dominated by what happened at gas stations.
Nominally, total retail sales rose 1.7% in March, and February was revised slightly higher to up 0.7%. After taking the monthly 0.9% increase in consumer prices into account, real sales increased 0.6% (blue). Because of the outsized impact of gas prices this month, the below graph also shows real sales ex-gasoline, which *declined* -0.3% (gold):
As is obvious, including vs. excluding gasoline sales makes a big difference. Including such sales, real retail sales were the highest since the end of 2022. Excluding them, however, they remain below their peak from last August.
Interestingly, the same phenomenon occurred in the 20006-07 period before the Great Recession, where total real retail sales trended slightly higher, but excluding gasoline trended lower:
This can (and I think, should) be read as consumers cutting back on other purchases in order to buy gas for their vehicles. While March is only one month, if this continues several more months it would be sending a significant warning signal.
On a YoY basis, nominal total retail sales were up 4.0%, and in real terms up 0.7%. Excluding gasoline, YoY were up 2.9%, and in real terms *down* -0.4%. Further, if you believe, as I do, that the shutdown shelter kludge removed about 0.2% from consumer inflation during the September-October period, which is still affecting the YoY calculations, then the situation is similarly weaker:
Following up on yesterday’s post, per capita real retail sales have been a very good but not perfect long leading indicator. Since the populaiton estimates have not been updated through March yet, I can’t show you an updated graph, but in the past few months population gains have been just barely above 0, so the population-adjusted changes for March would be almost identical to the graphs above.
Finally, since consumption leads employment, here is the update of YoY total real sales and real sales ex-gasoline (/2 for scale) together with employment (red):
This suggests that on a YoY basis employment is unlikely to deteriorate further over the next several months. Since there were positive numbers last year from February through May, this suggests there will also be gains - if small ones - in the next several months.
To sum up, March’s spike in gas prices did cause consumers to reallocate spending slightly, but not to cut back retail spending in the aggregate.
