There is nothing those who run the propaganda machine like more than a good retail sales number. It is music to the ears of a Keynesian economist to hear that people are consuming more this month than they did last month. The March numbers did not disappoint.
Retail sales in the U.S. rose more than forecast in March as Americans snapped up everything from cars and furniture to clothes and electronics.
The 0.8 percent gain was almost three times as large as projected and followed a 1 percent advance in February, Commerce Department figures showed Monday.
An improving job market is giving households confidence to sustain spending in the face of higher gasoline costs, analysts said. Strengthening consumer demand also raises the odds that the world’s largest economy will weather a recession in Europe and slower growth in China.
“I think people are feeling better about the economy, that we are on the upswing so they feel better about buying,” said Judee Leichter, owner of EJ’s Boutique in Leawood’s Park Place retail center. Sales at EJ’s increased 22 percent in March, compared to a year ago.
Up, up and away! The red line shows retail sales excluding gasoline. Graph from Calculated Risk
If you want to put these fabulous retail sales numbers in perspective, it is helpful to consult Doug Short of dshort.com. This next graph is from Retail Sales: Up 0.8% in March.
How much insight into the US economy does the nominal retail sales report offer? ... Gasoline prices can act as a tax on economic growth: The more we spend on gasoline, the less we have to spend on other goods. And with the current rise in gas prices, this covert "gas tax" is a definite reality. With this concept in mind, let's look at the real, population-adjusted retail sales excluding gasoline.
By this analysis, adjusted retail sales ex gasoline fell 0.1% in March from the previous month and rose a mere 2.8% year-over-year, and it's actually down 8.1% below its all-time high in January 2006.
The Great Recession of the Financial Crisis is behind us, but a close analysis of retail sales suggests that the recovery has been weak. And in "real" terms — adjusted for population growth and inflation — consumer sales remain at the level we were about seven months into the last recession.
Retail sales excluding gasoline, adjusted for population growth and inflation. Looked at this way, sales are now at their 1998 level, down 8.1% from their peak in January, 2006. Click to enlarge.
The first graph above is ideal for the purposes of propaganda and obligatory optimism. It is a very simple graph, just two steadily rising lines interrupted briefly by the Great Recession. Such graphs make run-of-the-mill economists like Mark Zandi very happy, as he tells Aaron Task in the video below.
Notably, retail sales excluding auto and gasoline sales — which Zandi calls a "key gauge of where consumer are" — rose 0.7% in March and are up 5.6% on a year-over-year basis. "It's not boom times, but that's pretty good," he says. Overall retail sales are "up and up in a solid way."
Zandi attributes two main forces to the surprising strength of U.S. consumers: jobs and the stock market...
While the labor participation rate is down and the "real" unemployment rate remains stubbornly high, Zandi notes job growth has been "increasingly broad based," across various industries, regions and occupations. He believes payroll growth will average 175,000 to 200,000 per month this year, which is enough to bring the unemployment rate down and sustain solid consumer spending.
Meanwhile, strength in the stock market, until very recently at least, has provided further impetus for spending by wealthier households, who account for a disproportionate of overall consumer spending.
Wealthier Americans have also greatly reduced their debt levels since the crisis of 2008, Zandi notes, another key distinction between higher income consumers and those in the bottom half.
Add it all up and Zandi believes the economy could be on the brink of a "virtuous cycle", where job growth is strong enough to maintain consumer spending which will lead to more hiring and further strength in household spending. His forecast is for the unemployment rate to fall below 8% by Dec. 31 and approach 7% in 2013.
The more sensitive souls among you may have overwhelming feelings of nausea and disgust right about now. Take a break from reading this post and go find a bucket to throw up in.
The second graph above is far more complex than the first one. It is completely unsuitable for the purposes of propaganda and obligatory optimism. Doug Short's graph requires actual thought. Adjusted for inflation, the population grew and grew but "consumer" spending has not nearly kept pace since 2006. And as Aaron Task and Mark Zandi helpfully point out, the rich are making a big comeback, thanks to the stock market, which itself was given artificial lift by "Helicopter" Ben Bernanke, and the rich do a disproportionate amount of the spending. See my post America Is A Plutonomy.
And we should all know by now that booming "consumer" spending prior to the recession was driven by easy credit and home equity, which soared during the now-defunct Housing Bubble.
Thus we can conclude that a relative few are doing most of the spending, or at least account for most of the spending increases, and many, many people—the little people, the hoi polloi—are spending much, much less. Except for gasoline, of course.
Spot on! And the economic reality certainly feels the way you describe it too...
Posted by: T E Cho | 04/17/2012 at 10:04 AM