Retail Sales in January 2018 rose by a little over 5% year-over-year. That followed sharp downward revisions to December, where in the biggest retail month of any calendar sales are now thought to have gained just 3.7%. Both of those rates are concerning, particularly the latter, given that almost all the gain was registered during September and October – the hurricane boost.
In seasonally-adjusted terms, retail sales declined in January after being revised to flat in December. In this view, US consumers may appear to have taken two months off from spending.
That’s not really what’s happening, of course. Rather, retail sales and a lot of other statistics captured the burst of activity triggered by the cleanup and recovery from the severe storms along the Gulf Coast in later summer 2017. In these spending figures, it was a massive 3-month gain of 3.4%. That works out to a ridiculous annual rate of 14.7%, meaning that there was no other possibility but Harvey and Irma.
In the seven months prior to September, retail sales had increased by less than 1%. That was far more consistent with especially recent estimates for income. With the labor market still on a much lower growth trajectory, incomes have been flat for several years in a row. That didn’t change with those storms, nor for any other reason.
Therefore, it was always reasonable to expect that once the temporary boost due to the anomalies had passed, consumer spending figures would revert toward their baseline; which it appears they have started to. That baseline, or what really matters, continues to be the opposite of an economic boom, especially this latest one being described as led by consumer spending. It’s just not there.
I have to wonder by just how much this inflationary boom narrative was misled by those gains in September through November (as well as in other related estimates, such as imports). That was when this description, like some of these accounts, really took off. We’ve seen it before, of course, at times like 2014 and before, but in later 2017 it became a thing.
It’s not as if consumer sentiment had gained all that much more later last year. By several measures and indices, confidence was perhaps a little lower or at best even during those months than it had been since “reflation” in 2016.
That leaves very little apart from the unemployment rate to account for this idea of a boom. Some of it is easily attributable to the non-specific, nebulous “global growth” format where it’s easy to claim the US economy is going to pick up because someone’s somewhere else is, but the unemployment rate has been begging for domestic corroboration since 2014. A big upturn in retail sales would appear (to some) to be the long-awaited economic acceleration that usually marks full employment.
Though this may surprise those on the edge of the boom, there is also so-called residual seasonality to consider. That isn’t the real issue, of course, rather it has become a repeated pattern in the post-2008 American economic landscape for consumers to spend at the end of each year at Christmas – and then be forced to pull back in Q1 of the next upon receiving their credit card statements and small rather than the broadly forecasted big wage gains.
That’s especially true beginning 2018 given the Federal Reserve’s statistics on consumer credit, where balances outstanding for the revolving kind increased by historically large levels. Some have surmised those big gains in November and December were related to Bitcoin purchases, though even if that was the case (and it certainly wouldn’t be that much of a surprise) some large portion was still meant for spending (which we know via the drop in the personal savings rate).
Behind everything is income. There’s just no getting around it, though for several years in the middle 2000’s the housing bubble supplemented weak income by mortgage-based debt. It was, and remains, a disaster. The unemployment rate can drop to zero, but if what’s below doesn’t at some point move higher it won’t matter in the least.
No income, no inflation, no boom. The book on January 2018 is being closed out, and that’s still the indicated case.