You’ve probably heard the adage that the American consumer just won’t quit. And this last month’s retail sales numbers seems to follow that saying. However, if you look beneath the surface, American consumers are cutting back indeed. Paul Kasriel, the Chief Economist at Northern Trust, makes this point.
Don’t write off the U.S. consumer, right? Wrong. On a year-over-year basis there has been a sharp deceleration in nominal retail sales growth. On a year-over-year basis, there has been a sharp contraction in price-adjusted retail sales. The chart below using quarterly average data illustrates this. Growth in nominal retail sales peaked back in the first quarter of 2006 at 7.6% in this cycle. In the second quarter of this year, nominal retail sales growth had slowed to just 2.6%. Adjusted by the goods or commodities component of the CPI, retail sales on a year-over-year basis have been declining for three quarters running, contracting by 2.6% in the second quarter of this year. Notice that in the recession of 2001, although price-adjusted retail sales experienced slower year-over-year growth, they never outright contracted. In this recession – yes, despite all the happy talk, we are in a recession – real retail sales are contracting.
If you read my post on the recent consumer price inflation numbers, you’ll know that the CPI for Q2 2008 was running at a eye-popping 7.9%. So, 2.6% growth in nominal retail sales looks very poor indeed taken in that context. So much for the old adage.