May 13, 2011
I delayed my commentary on the latest Retail Sales Report until today because my focus is on “real” (inflation-adjusted) and population-adjusted retail sales data. Now that we have the April CPI report, let’s analyze the numbers.
Retail sales rose 0.5% in April, the smallest gain since last July. The chart below shows the complete series from 1992, when the U.S. Census Bureau began tracking the data. I’ve highlighted recessions and the approximate range of two major economic episodes. The Tech Crash that began in the spring of 2000 had relatively little impact on consumption. The Financial Crisis of 2008 has had a major impact. After the cliff-dive of the Great Recession, the recovery in retail sales has taken us (in nominal terms) 2.9% above November 2007 pre-recession peak.
Here is the same chart with two trendlines added. These are linear regressions computed with the Excel Growth function.
The green trendline is a regression through the entire data series. The latest sales figure is 6.5% below the green line end point.
The blue line is a regression through the end of 2007 and extrapolated to the present. Thus, the blue line excludes the impact of the Financial Crisis. The latest sales figure is 15.5% below the blue line end point.
We normally evaluate monthly data on a month-over-month or year-over-year basis. The April 0.5% increase over March and 7.5% increase over March 2010 are in the right direction. But a snapshot of the larger historical context illustrates the devastating impact of the Financial Crisis on the U.S. economy.
The “Real” Retail Story: The Consumer is Still in Recession
The charts below give us a rather different view of the U.S. retail economy and the long-term behavior of the consumer. The sales numbers are adjusted for population growth and inflation. For the population data I’ve used the Bureau of Economic Analysis mid-month series available from the St. Louis FRED with a linear extrapolation for the latest month. Inflation is based on the latest Consumer Price Index. April retail sales adjusted accordingly declined 0.2% from March.
Consider: During the past 21 years, the U.S. population has grown by over 22% while the dollar has lost about 39% of its purchasing power to inflation. When we adjust accordingly, the rebound in retail sales from the bottom in April 2009 merely gets us back to the per capita spending of 1999.
Retail sales have been recovering since the trough in 2009. But the “real” consumer economy, adjusted for population growth still in recession territory — 8.2% below its all-time high in January 2006.
Note: For the mathematically inclined, I’ve included a linear regression and a best-fit polynomial regression. The inflation-adjusted series is chained to the January 1992 dollar when this series began being reported.
As I mentioned at the outset, nominal retail sales rose only 0.5% in April. However, the gasoline sales component jumped 2.7%. Gasoline price increases essentially act as a tax on economic growth: The more we spend on gasoline, the less we have to spend on other goods. 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 dropped 0.5% in April from the previous month and a full 1.0% from the interim high in February.
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 may be showing signs of stalling.