Real retail sales the highest so far this year, but still negative YoY
– by New Deal democrat
The second point of economic data released this morning, retail sales, were also positive.
On a nominal basis, retail sales in July rose 1.0%. After adjusting for inflation, they rose 0.8% to the highest level so far this year. The below graph norms both real retail sales (dark blue) and the similar measure of real personal consumption of goods (light blue) to 100 as of just before the pandemic:
Since the end of the pandemic stimulus in spring 2022, real retail sales have been trending generally flat to slightly declining, while real personal consumption expenditures on goods have continued to increase.
On a YoY basis, however, real retail sales are still negative at -0.3%, which while also the second best reading this year, remains problematic:
That’s becuase, although I won’t bother with the graph, a negative YoY comparison in real retail sales over the past 75 years has usually meant recession. Obviously that wasn’t the case in 2022 and 2023, but at some point the historical relationship is likely to be valid again.
Finally, since real sales are a good if noisy short leading indicator for employment, here is the above YoY graph adding YoY payroll gains (red):
This forecasts continued weak job reports in the range of 75,000 to under 200,000 in the month immediately ahead.
Two months ago I concluded that , especially in view of the relatively poor numbers since the start of this year, real retail sales had to be regarded as raising a caution flag for the economy. Last month I concluded by saying “The yellow caution flag is up,” especially in conjunction with the negative ISM manufacturing and non-manufacturing numbers. The reversal in the latter to positive this month takes some pressure off, but the longer real retail sales go without posting a positive YoY number, the more concerned I will be.
The Bonddad Blog
Retail Sales Declined and a Slight Downtrend, Angry Bear by New Deal democrat
New Deal democrat, just a day before this report, you headlined:
“The index for shelter accounted for nearly 90 percent of the [otherwise sleepy] monthly increase (in the CPI)
but even as you acknowledge that the CPI is thus flawed as a measure of all around inflation, you come back the next day and use that flawed CPI to adjust retail sales for inflation. what sense does it make to adjust auto, clothing, and food sales with the cost of rent?
applying appropriate prices indexes from the CPI to retail sales, such as the apparel price index to clothing store sales, i get real retail sales up 1.3% in July (vs +0.8% from FRED)
while that looks like a rocket start to Q3 GDP, i’d caution that retail sales of autos & parts were up 3.6% in July after falling 3.4% in June…that was because of the June hack of the auto dealer’s software, which made it impossible for them to close sales in June…..so your June auto production went into inventories, and obviously came out of inventories with July sales…net, it should be close to a wash for national accounts…