By now you have seen the headlines on the strong retail sales.
Surprise, surprise, when we go behind the headlines and look at what actually happened, retail sales went gangbusters. Sort of.
To get a handle on reality I look at the not seasonally manipulated numbers, then back out retail price inflation. I also like to back out population growth and gasoline sales, which can skew results based on price volatility, or in this case, pandemic induced behavioral change.
First, nominal, not seasonally adjusted retail sales before adjusting for inflation rose 2.3% year to year. That’s right. June sales were higher than June 2019. Obviously, there was massive pent up demand as May sales had been down 7.2% and April sales were down 19.4%. So when people had the chance to make up for lost ground, they bought.
However, most of the gain was due to inflation. Backing out price increases, and looking at sales per capita, the year to year change was just +0.8%.That followed 3 months of huge losses. Those 3 months of lost sales are gone permanently. Retailers will never see that money.
But sales per month are back to where they were. The release of pent up demand did not recover the lost sales from 38% of cumulative declines over 3 months. But with monthly sales back to normal levels, retailers who survived the 3 month crater could limp along from here, and so could the US economy…
…If the pandemic was not getting worse, causing more people to lose jobs, stay home, and not spend. And we know where that’s headed, unfortunately. Without massive behavioral change, these numbers will get worse. We’ve already seen it in the real time tax collection data.
Contrary to the claims of Trumplestiltskin, of the greatest economy ever pre COVID, the economy wasn’t doing so hot even before the pandemic hit. Retail Sales per capita have been flat for a couple of years and they are still below the peak levels of 2006-07.
The bulk of consumers were hardly doing well even before COVID, particularly since the Trumplestiltskin tax cut which took effect in 2018. Rich people got a windfall, but they hardly needed help spending. The rest of the people got no help, and the evidence reflects it.
There’s an interesting wrinkle when we back out gasoline station sales. We know that Americans are driving less and spending less on gas, thanks to COVID 19. They’re apparently shifting some spending to other retail goods, largely online.
The gasoline refiners’ and retailers’ loss is Walmart and Amazon’s gain. In other words, it’s a wash for the entire economy, of which oil production, refining, and sales is a big part. But it’s a gain for some retail sectors. Winners and losers you know.
Real retail sales per capita before gasoline sales rose by a solid 3.1%. And indeed they made a new all time high. The American spirit of consumption is apparently alive and well.
Even a raging pandemic with millions sick and 140,000 dead people so far, can’t stop that. Malls may be dead and dying, but the propensity to spend frivolously lives on. Online retail makes it even easier for Americans to indulge in that compulsion.
Maybe if the morons refusing to wear masks would start wearing them, we’d have a chance to see the economy really come roaring back as the spread of the virus subsided.
That would be bearish of course. With all the free money the Fed has pumped into the system, consumer price inflation would erupt, bonds would collapse, the Fed would have to stop printing money, and stocks would crash.
Wash, rinse, repeat.
But at least if the one third of Americans who resist wearing masks would start wearing them, we’d have a chance at keeping this recovery going, and defeating the next pandemic before it destroys the US economy and kills most of us.
The real time tax data for July should give us an inkling on whether the rebound that we saw in June can be sustained through the increasing spread of the virus. So far, the news isn’t encouraging.
