- by New Deal democrat
As per usual, real retail sales is one of my favorite economic indicators, because it says so much about the health of the US consumer, and since consumption leads employment (noisily), also forecasts the trend in job creation.
Normally I don’t spend a lot of time on nominal retail sales, but this year that is more useful. That’s because the weekly Redbook index, which tracks nominal retail spending YoY, has been accelerating, up as much as 11% YoY (in fact this week it was 10.5% higher YoY). Here’s what the past five years of that index look like:
It was white hot in 2022, cratered in 2023, and has been accelerating back higher ever since, including this year.
But was it telling an accurate story?
That’s where nominal retail sales come in. These were up 0.8% in September, and higher by 6.3% YoY. Here is what the YoY% changes in that metric look like over the past five years:
This is the exact same pattern as in the Redbook graph above. In other words, Redbook’s weekly updates have been telling us a true story (which is one reason why I track them every week as part of my Seeking Alpha weekly roundup of data).
But as useful as nominal information can be, the inflation adjusted data is more important. And since consumer inflation was higher by over 0.6% in September, real retail sales rounded to only a 0.1% gain. Still, note that there has been a sharp increase in real retail sales this year, although they remain lower than during the immediate post-pandemic Boom:
Note that this is telling a similar story to that of jobless claims that I just updated again this morning.
Although I won’t show the historical graph in this post, for about 70 years prior to the pandemic a decline in real retail sales YoY generally meant that a recession was close at hand. As you can see from the below graph, that wasn’t true for 2023-24. But YoY real retail sales have been positive, and improving, this year:
Further, real retail sales lead nonfarm payrolls (red in the above graph), albeit noisily. Sudden changes, such as caused by YoY comparisons with stimulus spending, take a longer time to get “digested” by the jobs market (a decent proxy is the 12 month average of the YoY% change in sales), but typically the lead/lag time is on the order of about 6 months. In that regard, here is the close-up of the last two years in the above YoY graph:
With the improvement in real retail sales this year, I expect the next few jobs reports to be positive, and perhaps more positive than we saw earlier this year.
So, to reiterate: like jobless claims, this is another positive for the economy.