- by New Deal democrat
Since I posted earlier about why I follow jobless claims so closely, let me briefly restate why I pay a lot of attention to real retail sales.
Retail sales have been tracked for over 75 years. When they are lower YoY, that has historically been a good (not perfect) indicator that a recession is near. That’s because that same 75 year history empirically demonstrates that consumption leads jobs. In other words, it is the change in sales that causes employers to add or lay off employees (not the other way around, as I have sometimes seen claimed).
And the news for December was mildly positive. Nominally retail sales rose 0.4%. Inflation also clocked in at 0.4%, but after rounding real retail sales rose 0.1%, continuing their general uptrend for the past six months:
One of the rare false signals of YoY sales took place in the last several years, as consumers binged on goods purchases with their pandemic stimulus money in 2021 and early 2022, resulting in a downdraft for the next several years:
As you can see, this has abated in the last few months, with YoY real retail sales up 1.0% in December. Much of this pattern has to do with what we saw in motor vehicle prices in the inflation report yesterday. After the big jump in vehicle prices in 2021-2022, consumers balked in 2023, and new vehicle prices remained flat. In the past few months, demand has increased and prices have begun to rise again as well.
In any event, real retail sales are a positive for the economy in the next few months.
Finally, per the above paradigm, here is the update on real retail sales vs. employment. Because the distortion in shelter prices has had so much effect on consumer inflation in the past few years, last month I also added the comparison with inflation ex-shelter (light blue):
Real sales suggest that employment gains should continue to slow. Indeed, we might very well find out with next month’s annual re-benchmarking of the employment numbers that they already have.
