- by New Deal democrat
Let’s take a look at retail sales, especially real retail sales, one of my favorite economic indicators, which was updated for June this morning. This is because consumer spending is about 70% of the economy, and also because historically consumption leads employment. Let’s see what happened during a month that gas prices declined sharply.
Nominally, total retail sales rose 0.2% in June. But since there was actual *de*flation in consumer prices by -0.4%, real retail sales rose 0.6% (blue):
Since gas prices have been a major driver of inflation in the past few months, here’s a look at the monthly % changes in nominal retail sales excluding gas stations (orange) vs. total retail sales (blue). Retail sales excluding-gas increased a very strong 0.7%:
In other words, real sales ex-gas increased over 1% (!) in June.
On a YoY basis, nominal total retail sales were up 6.7%. In real terms they were up 3.1%.
This is the highest YoY comparison since 2022. As we have seen with the weekly Redbook sales reports, consumer spending is simply Booming.
As I wrote last month, it is *very* likely that this is “wealth effect” spending by upper income consumers triggered by the near 20% rise in the stock market since the end of March. Recently Menzie Chinn at Econbrowswer reposted a report from economists at the Bank of France that about 50% of all US consumer spending in 2025 was fueled by the wealth effect from rising stock market prices:
Needless to say, if the stock market gains have reflected a bubble in AI data center construction spending, then this could all reverse quite sharply.
Finally, since consumption leads employment, here is the update of YoY real retail sales (/2 for scale) together with employment (red):
Last month, I said that “this suggests that on a YoY basis the rebound we have seen in the last three jobs reports is likely to continue in the next several months.” Despite the relatively poor June jobs report, that remains the case.
