It follows that if we find production dropping into a two-year slump, sales are likely the cause. Retail sales continue to be just as stuck as the rest of the economy, an economic limbo between growth and recession with far more of recession than growth. After suffering one of the worst months in July, retail sales bounced back in August but only minimally to remain in the same tepid, troubling range that has plagued the world economy for two years.
The 6-month moving averages among the various subseries have all started to rollover, falling below the important 3% level usually indicating recession. Since, however, this economy is practically stripped of cyclicality, “stuck in recession” is an entirely different phenomenon.
The best way to describe the state of this stagnation given its length, where time is the most important factor, is through 2-year comparisons. Overall retail sales, including auto sales, in August 2016 were just 4.3% more than retail sales in August 2014. Under normal, cyclical conditions, retail sales grow by 6-9% in a single year, not two. As late as November 2012, the 2-year change was 12.4%. The average 2-year growth rate just before the dot-com bubble burst in early 2000 was more than 17% (meaning this is not a matter of calculated inflation).
In other words, the problem isn’t just that sales are stuck now at such a low level, it is more so that they are that way for a second straight year – with no indication whatsoever that is about to change. Instead, we find only more and increasing indications that consumer behavior is pushing against even these low limits.
As I have been writing for much of this year, the one bright spot has been Nonstore retail sales, the bulk of which is online commerce. Nonstore sales soared 16.3% year-over-year in August, the third such double digit increase in the past four months (and not even the highest rate this year). It would have been four straight but July Nonstore sales were revised lower to show “only” an 8% gain.
The flipside of that is General Merchandise stores, the bricks and mortar places that are losing market share to better pricing power of the more efficient virtual setting. Year-over-year sales of General Merch stores declined a rather sharp 2.1% in August, with the 6-month average now negative for the first time since 2010. Combined, both General Merchandise and Nonstore sales expanded by only 5.4% in the latest month, indicating the same low level of overall growth. It appears that the gain in online activity is coming at the expense of traditional formats, and overall any savings have not been spent elsewhere.
That includes, unfortunately, automobiles. Auto sales rebounded, too, in August, but to just 4.0%. While that was the highest rate since February, it is still among the worst of the past six years. The 6-month average for auto sales has dropped to 2.4%, down from 7% to end 2015 and the lowest since February 2010.
This is unsurprising given the paltry numbers already provided by the automakers themselves, including Ford Motor’s fervent hope of nothing worse than a “plateau” in sales. Thus, we find a sustained, serious deceleration in the auto sector at the same time online (nonstore) sales are booming. Both of those indicate a hard change in consumer behavior and therefore likely conditions. This is also unsurprising to anyone not hopelessly enthralled by the unemployment rate given that even most labor statistics show further deceleration this year.
Weakness that appeared in consumer-related segments of the economy, primarily trade and manufacturing, starting in January 2015 was supposed to be temporary, especially given the sharp fall in the unemployment rate that in all prior historical circumstances had indicated much, much better economic fortunes. Instead, that weakness became more widespread and noticeably worse throughout last year, causing economists and policymakers (redundant) to extend “transitory” to at least a full year in length; meaning that while 2015 was admittedly lost, 2016 would be different and live up to “full employment.” That clearly hasn’t happened, even after what looked like it was possible through spring.
By the count of inventory and production, this year is shaping up to be worse than last year, significantly so. With topline sales at best stuck for a second year, the lower levels of the supply chain can only adjust by becoming that much worse – including and especially in the vital auto sector that even in 2015 remained seemingly immune to all this upheaval. As I wrote of industrial production, it isn’t recession, it is much worse than that; a recession though often uncomfortable at least has a relatively quick end. This economy shows no signs of getting better in any month even after nearly two years, while the negative pressures only build and build to the point that deceleration and even contraction spread out into more and more places in devastatingly slow fashion.
While it may seem that the economy is just stuck in the “low-growth trap” as the OECD called it back in June, that is only because the strangulation is just that slight so as to remain unnoticed by the mainstream that obsesses in only cyclical terms. But the addition of auto sales to the sectors experiencing weakness is a prominent shift, as is, I believe, the huge appeal in virtual commerce of late, further suggesting that it is not a low-growth trap at all but an unusually shallow contraction unlike anything seen before. All this despite trillions in QE, specifying once more the monetary nature of it all.