August real retail sales show consumers keep powering ahead - by digging deeper into their wallets

 

 - by New Deal democrat

As per my usual intro, real retail sales is one of my favorite economic indicators, because it tells us so much about consumer spending, which is about 70% of the economy, and also because, with a lot of noise, consumption leads employment.

Last month, as it does about once a year, real retail sales laid an egg, declining -0.6%. This morning’s report for August reversed that and more, increasing 0.8% for the month. As we’ll see below, consumers dug deeper into their wallets to keep up with the inflationary expansion (nominally retail sales rose 1.2% for the month and were up 6.0% YoY).

To start, here are the post-pandemic absolute numbers for real retail sales:

Since gas prices have been a major driver of both inflation - and, temporarily, deflation - in the past few months, here’s a look at the monthly % changes in nominal retail sales excluding gas stations (red), which rose 1.1% vs. total retail sales (blue) which as noted above rose 1.2%:

As you can see, since the two measures have been similar most months, surprisingly gasoline sales do not appear to have been the main reason for the big increase in retail sales this year. There has been some speculation that the surge in consumer spending in spring and early summer was driven in part by larger tax refunds to upper income recipients due to the last year’s Budget Bust-out Bill. If so, despite possible contrary appearances in July, such added spending apparently did not tail off through August. 

On a YoY basis, since consumer inflation is up 3.4%, real retail sales were up 2.6% YoY. For comparison purposes, I also show the YoY% change in real personal consumption (gold) which won’t get reported until the end of this month, And since consumption leads employment (as I examined at length again yesterday), here is the updated comparison (/2 for scale) with nonfarm payrolls (red):

This continues to suggest that on a YoY basis the mild rebound we have seen in the jobs reports for most of this year is likely to continue for at least the next several months.

All of this is positive. But what isn’t positive is when we compare real retail sales, and real personal consumption of goods, as per above, with real aggregate payrolls, both for nonsupervisory workers (dark red), and for all employees including management (thin, orange):

Real payrolls are up 1.0% YoY, far less than real sales. This is further evidence that real sales increases have been driven by consumers’ digging deeper into their wallets or cashing in some of their stock market gains.