March retail spending: including or excluding gasoline makes all the difference

 

 - by New Deal democrat

Consumer spending is about 70% of the economy, and retail sales is our first wide measure of that spending. This morning’s update for March (still after all these months delayed about a week compared with the schedule before last autumn’s government shutdown) was unsurprisingly dominated by what happened at gas stations. 

Nominally, total retail sales rose 1.7% in March, and February was revised slightly higher to up 0.7%. After taking the monthly 0.9% increase in consumer prices into account, real sales increased 0.6% (blue). Because of the outsized impact of gas prices this month, the below graph also shows real sales ex-gasoline, which *declined* -0.3% (gold):

As is obvious, including vs. excluding gasoline sales makes a big difference. Including such sales, real retail sales were the highest since the end of 2022. Excluding them, however, they remain below their peak from last August. 

Interestingly, the same phenomenon occurred in the 20006-07 period before the Great Recession, where total real retail sales trended slightly higher, but excluding gasoline trended lower:

This can (and I think, should) be read as consumers cutting back on other purchases in order to buy gas for their vehicles. While March is only one month, if this continues several more months it would be sending a significant warning signal.

On a YoY basis, nominal total retail sales were up 4.0%, and in real terms up 0.7%. Excluding gasoline, YoY were up 2.9%, and in real terms *down* -0.4%. Further, if you believe, as I do, that the shutdown shelter kludge removed about 0.2% from consumer inflation during the September-October period, which is still affecting the YoY calculations, then the situation is similarly weaker:

Following up on yesterday’s post, per capita real retail sales have been a very good but not perfect long leading indicator. Since the populaiton estimates have not been updated through March yet, I can’t show you an updated graph, but in the past few months population gains have been just barely above 0, so the population-adjusted changes for March would be almost identical to the graphs above.

Finally, since consumption leads employment, here is the update of YoY total real sales and real sales ex-gasoline (/2 for scale) together with employment (red):

This suggests that on a YoY basis employment is unlikely to deteriorate further over the next several months. Since there were positive numbers last year from February through May, this suggests there will also be gains - if small ones - in the next several months. 

To sum up, March’s spike in gas prices did cause consumers to reallocate spending slightly, but not to cut back retail spending in the aggregate.

Updating the long leading indicators: per capita real retail spending and real spending on goods

 

 - by New Deal democrat

So much of the changes to the economy has been dictated by the whims of the White House that it has not made much sense to throughly update the suite of long leading indicators in many months. After all, why chart their incipient effects when they are consistently being overtaken by new lurches in diktats?

With a few empty days of new economic data this week, I thought I would take a look at a few of them; in particular, those most closely tied to the “real” vs. financial, economy. Today, let’s revisit and update real sales per capita.

Real retail sales per capita have long been an element of my list of long leading indicators, because they typically turn down about a year before the actual onset of recessions. In the past several years I have added the very similar indicator of real consumption expenditiures on goods from the personal income and spending report. Like the less broad retail sales measure, their growth either turns down or at least stalls out many months before the onset of most recessions.

Since the data on both these metrics goes back many decades, I have split the data by historical sections. First I look at it in absolute terms, and then we’ll look at it YoY, which better shows the turndowns.

First, here are real retail sales per capita have (red) and real spending on goods per capita (blue) from 1959-82, 1983-2008, and 2009-present:

While both metrics are somewhat noisy month over month, it is obvious that both measures of consumer spending increase almost continually throughout expansions, but either turn down (real retail sales) or at least stall (real spending on goods) typically on the order of a year before the onset of recessions in the past 60+ years. There have only been two exceptions: 1966 for real retail sales, and 2022-23 for both metrics. 

Why did the indicators fail in 2022-23? Mainly as an artifact of comparison. The stimulus payments to consumers in 2020 and 2021 during the pandemic led to a lot of durable goods purchases in particular, often goods delivered to homes. Simply put, for some time consumer demand for goods, especially durable goods, was largely satiated. Secondarily, the big decline in the price of gas from $5 to $3 a gallon beginning in July 2022 freed up lots of consumer cash to be spent elsewhere, thus avoiding a consumer-centric economic downturn. 

Note that in the past year both metrics have essentially stalled. And insttead of a big decline in gas prices, consumers have been faced over the past six weeks with a big incrrease.

Now let’s look at the same historical series YoY:

Again, note how positive YoY improvements in real consumer retail spending, and spending on goods, have always correlated with continued economic expansions. With the exception of 1966, the only negative comparisons which did not correspond with the start of or oncoming recessions were sporadic months in 1987, 1994, 1996, and the near “double-dip” of 2002-03.

Now let’s look at the post-pandemic YoY record:

Again, we see the poor 2022-23 performance, which was a major false negative resulting in large part from poor comparisons compared to 2021. While the poor performance of real retail sales continued into 2024, it was not confirmed by the broader measure of real spending on goods. Both decelerated sharply in 2025, and both were negative during December. Which means they aren’t signaling an oncoming recession now, but the trend is not good. And the YoY comparisons will be challenging for the next several months: for retail sales, February was already -0.5% below last March, and -0.2% below last April.

Real retail sales will be updated for March tomorrow, and real spending on goods will be updated on the 30th.

Weekly Indicators for April 13 - 17 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

The biggest news this week is how sharply oil prices backed off of their recent highs, as speculators figure that all will soon be back to (at least close to) the status quo ante in the Persian Gulf. Secondarily, the Empire State and Philly Manufacturing Indexes continued the theme of a rebound in that sector.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and bring me a penny or two in lunch money for my efforts.

March industrial production mainly continues stagnant trend

 

 - by New Deal democrat

Since I didn’t get to it yesterday, let me say a few words about yesterday’s industrial production report for March this morning.

I used to call this “the King of Coincident Indicators,” but with the shrinking of manufacturing as a share of the US economy, that is no longer the case. Nevertheless, it is an important coincident indicator, with the emphasis on *coincident.* It doesn’t tell us where we are going, but is an important signpost about where we *are.*

And what yesterday’s release showed us, for the about the sixth month in a row, is that the coincident economy is stagnant (but not contracting!), with the big exception of AI-related spending.

In March total industrial production (blue in the graph below) declined -0.5%, although February was revised higher to +0.7%. Manufacturing production (red, right scale) declined -0.2% and was revised lower for the previous several months. Total production is only 0.2% higher than what it was last August, and manufacturing production is lower than it was during the entire July-September period:

Where AI-related spending shows up is in the utilities subindex (gold in the graph below, right scale). If we look at all industrial production less utilities (blue, left scale), then like manufacturing, production has made no headway since last summer, and indeed is slightly lower:

So as I started out above by saying, the message of industrial production was not one of contraction, but one of being stagnant with the exception of AI-related data center construction and support. 

Jobless claims continue to be the most positive metric in the array of economic indicators

 

  - by New Deal democrat

The new regime of lower jobless claims continued this week. Initial claims declined -11,000 to 207,000, while the four week moving average rose 500 to 209,750. Both of these remain within a stone’s throw of their recent 50+ year lows. Continuing claims, with the usual one week delay, rose 31,000 to 1.818 million but aside from that and one other recent week, is the lowest since May 2024:

The YoY% changes also continue to be lower, with initial claims down -4.6%, the four week average down -5.1%, and continuing claims down -3.1%.:

This continues to be very positive for the economy over the next several months. To reiterate, jobless claims are currently the most positive leading indicator of any across the board.

Since jobless claims lead the unemployment rate, let’s update that as well:

Jobless claims continue to indicate that the unemployment rate over the next several months should decline to the 4.2% or even 4.0% range.