Consumers say “hold my beer” to DOOOMing about sales

 

 - by New Deal democrat

Retail sales is the first of two very important indicators we got this morning. Per yesterday, with employment growth “dead in the water” since April, consumer spending - which leads future employment - is the single most crucial element of a turning point. 

 It really is incredible how it takes a major shock for American consumers to cut back on spending. Because in August nominally retail sales rose 0.6%, confirming the very positive weekly data that has recently shown up in Redbook. Additionally, July was revised 0.1% higher, from 0.5% to 0.6%. After taking into account consumer inflation in August, which rose 0.4%, real retail sales rose 0.2% for the month, after a 0.4% increase in July.

This means that real retail sales are now at their highest since January 2023, as shown in the graph below (blue):

The above graph also shows real personal spending on goods (gold, right scale), which is a broader measure and tends to trend similarly to retail spending, but won’t be reported until the end of this month.

Further, with several exceptions, most notably in 2022-23, in the past 75 years whenever real retail sales turned negative YoY, a recession was about to begin or had just begun. If it was positive and not sharply decelerating, a recession was unlikely in the immediate future. At present real retail sales are higher YoY by 2.1%, so there is no sign of any imminent downturn in the economy:

Finally, because consumption leads employment, here is the updated graph of real retail sales YoY, together with real personal consumption of goods compared with nonfarm payrolls (red):

Based on historical experience, after the last two good months, real retail sales now suggest that YoY jobs growth will not roll over, but remain in a similar weakly positive range for the next several months.

The big question continues to be whether the continuing chaos of the imposition of tariffs at the highest rate since Smoot Hawley in 1931 creates enough of a shock to derail consumers. So far, (at least perhaps at the top end)  it most emphatically has not.