Friday, December 11, 2015

Good news and bad news on retail sales

 - by New Deal democrat

This morning's retail sales report can be summarized as follows:

  • +.2% headline
  • +.4% ex-auto
  • +.3% ex-gasolinle

which is something of a reversal of recent months, where auto sales have done the heavy lifting.

Let me get the good news out of the way first. Once the CPI comes out next week, we will probably find out that November set a record.  This is because gas prices account for most of the month to month variability in the CPI.  There is an underlying core inflation rate of between +0.1% and +9,2% each month, so if we take that, as well as the volatility of gas prices, into account, we almost always can identify the direction, and ususally the fluctuation +/-0.2%, of the overall CPI number.

Here's what the last year looks like, including the change in November gas prices:

November CPI is likely to be no higher than unchanged, and could easily decline by -.4%.

Let's apply that to real retail sales (red in the graph below) compared with nominal retail sales, both normed to 100 as of October:

If consumer prices are up by no more than +.1%, we will tie the previous record -- and we are likely to surpass it.

The bad news is that, even so, the above graph suggests that real retail sales are flattening.  This is not uncommon in the 18 months before a recession.  Just another sign that we appear to be later in the cycle.