Retail sales data for March was reportedly strong. As CNBC.com put it in bold 24 point type
US retail sales soared 1.6% in March
They also said it was the best month since 2017.
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That was, of course, a seasonal adjusted fictional number designed to make you believe that that was the actual monthly change. But, as you know if you’ve been reading these pages at all, it wasn’t. It was statistical hocus pocus designed to smooth out the normal, and abnormal, fluctuations that happen every month. In addition, it’s subject to 7 revisions over 5 years, until the number is ultimately finalized. That first revision the following month is often huge.
In a rarity the February figure was unrevised in this report. But last month they revised January up from a gain of 0.2% to 0.7%. We knew that was coming, except they put the gain back into January, rather than February, as we expected.
Was March retail sales data really that good?
The real time Federal withholding tax data that I track regularly for Liquidity Trader subscribers suggests that it should have been strong. The month to month actual data was strong. But the yearly growth rate has a problem.
The Actual Retail Sales Data for March Painted a Slightly Different Picture on the Long Term Chart
We don’t use fudged SA data to idealize the trend. We just look at a chart of the actual data to see the trend with our eyes. Here’s what the actual, not seasonally adjusted data (NSA) shows us.
Well, oops! That doesn’t look “soaring” to me. Does it to you? In fact, the year to year growth slope for March (blue line) looks a lot slower than February (gray line).
The lower graph shows the annual rate of change. It’s currently 1.5%. That’s down from a growth rate of 2.1% in February and 3.3% in January. It has been decelerating since May of last year, when the growth rate hit 7%. March’s strength did not reverse the trend.
Normally, retail sales follow the stock market. That’s because those who own stocks are the only ones with enough income for discretionary spending to move the needle. They follow the market for their spending cues.
Last month I wrote, “With the March stock market rally, we would expect a strong retail sales number next month.” The month to month performance came in as expected. The correlation lives and tax collections are still a good tell. If the stock market keeps blowing its top, retail sales will probably accelerate. The Fed will have no excuse to loosen policy.
March Retail Sales Were Strong Month to Month
The actual, NSA data shows a 16.2% increase month to month. That’s above the March average of +13.7% over the past 10 years. It was the second best March of the past decade. Only March 2018 was beeter at +16.9%.
This is consistent with both the rise in the stock market and the strong withholding tax collections.
But is wasn’t strong enough to reverse the pattern of slowing growth in the annual rate of change.
We look at that data adjusted for retail price inflation, and population growth to see the big picture of how we’re doing long term. On that basis retail sales are going nowhere.
Adjusted for Inflation and Population It’s Ugly
Adjusted for retail price inflation, there is no growth, The annual growth rate is DOWN 1.1%!
So while the Fed and Wall Street focus on the fantastic headline number, the foundation is rotting.
I like to remind regular readers, and welcome new readers, with this visual of the hollowing out of the US economy. It’s a long term chart of real retail sales, adjusted for population growth. It’s not a pretty picture.
The Majority are Not Getting Ahead
Those at the top of the income spectrum are able to increase their spending and push the headline retail sales numbers ever higher. But on average, the total volume of March retail sales per person in the US only got back to 2006-2007 levels in 2018. This year, they plunged again, and are barely above 2008 recession levels. With those at the top pulling the averages up, then the rest are either barely holding their own, or are losing ground in terms of their spending.
The majority of Americans are cutting back as their incomes have not keep pace with retail price inflation. Big business has waged a relentless war against labor costs.
The loss of interest income to US retirees over that time has played a role in that stagnation.
Current Policy Drives A Negative Long Term Trend
Nobody in establishment economics, or at the Fed, or among government economic policy makers, will ever tell you that monetary policy is a two way street. For every policy beneficiary, there’s an equal, offsetting loser. The winners add to the economic growth numbers, and the losers subtract. There’s no free lunch.
Mainstream policy makers and economists will only tell you how QE and ZIRP (zero interest rates) saved the world. They say that low interest rates stimulate growth. In fact, ZIRP and QE only saved the bankers and speculators, and those of us who own stocks. We benefitted along with the Jamie Dimons and Donald Trumps of the world.
The rest haven’t done so well, and that continues today. The broad base of workers and ordinary savers who comprise the foundation of the US economy are falling out of the middle class.
Low interest rates punish workers and savers. They encourage financial engineering schemes and investments that eliminate workers, rather than pay them more.
In the long run, this attack on labor and savings will continue to chip away at Americans’ incomes, and thus at corporate profits.
When inflation is stripped out, retail sales data show that most consumers can’t spend. If workers and savers, who are consumers, can’t spend, then the strategy of corporations borrowing money to buy back stock is a shell game that will end badly.