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Factoring in Revisions and Inflation, Retail Sales Remain Very Weak

The commerce department made a 0.4 percentage point negative revision to July. August bounced 0.3 percent. Factoring in inflation, sales are weak.
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Retail sales data and inflation adjusted retail sales, chart by Mish

Retail sales data and inflation adjusted retail sales, chart by Mish

Advance Retail Sales 

Today, the Commerce Department released Advance Retail Sales Data for August. 

  • Advance estimates of U.S. retail and food services sales for August 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $683.3 billion, an increase of 0.3 percent from the previous month, and 9.1 percent above August 2021. 
  • Total sales for the June 2022 through August 2022 period were up 9.3 percent  from the same period a year ago. The June 2022 to July 2022 percent change was revised from virtually unchanged to down 0.4 percent. 
  • Retail trade sales were up 0.2 percent from July 2022, and up 8.9 percent above last year. 
  • Gasoline stations were up 29.3 percent from August 2021, while nonstore retailers were up 11.2 percent  from last year.  

Much Weaker Than It Appears 

The key phrase above is "adjusted for seasonal variation and holiday and trading-day differences, but not for price changes."

The reported numbers appear to be strong. My chart factors in CPI inflation.

On an inflation-adjusted basis, retail sales peaked in March of 2021 and fell steadily to December of 2021.   

Recession Analysis 

The numbers from March to December 2021 are very recession looking in isolation. But housing was humming nicely.

GDP was negative in the first and second quarters of 2022, but GDP real final sales (not the same as retail sales) were positive in the second quarter. 

On the retail front, consumers picked up the pace between January and April of 2022. Real retail sales rose from 226,467 million to 233,739 million. That's a 3.2 percent inflation-adjusted rise in retail sales and not at all consistent with a recession, even a weak one.

Starting in May, both retail sales and housing slumped. This is why I pegged recession with a start date of May (in advance), expecting continued weak retail sales coupled with abysmal housing.

The revisions to July and weak August numbers remain consistent with a weak recession that started in May. 

What About Jobs?

  • The Covid-recession was very short, two months, not even a full quarter of declining growth. The pandemic was also accompanied by the greatest job losses in history.
  • I expect the opposite of the Covid-recession: A long period of weak growth accompanied by relatively strong unemployment numbers.

Countless times over the last six months I heard jobs are are too strong for there to be a recession.

Such talk is nonsense.

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We may easily see three or four quarters of negative GDP with relatively strong jobs because we never fully filled the losses from the pandemic. 

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My follow-up article was A Big Housing Bust is the Key to Understanding This Recession

Housing leads recessions and recoveries and housing rates to be weak for a long time.

Add it all up and you have the opposite of the Covid-recession, a long period of economic weakness with minimal rise in unemployment.

Increasingly Likely That Alleged Job Strength is a Mirage of Part Time Second Jobs

By the way, jobs are nowhere near as strong as they appear either. For discussion, please see Increasingly Likely That Alleged Job Strength is a Mirage of Part Time Second Jobs

It does not matter whether you label this a recession or not. Besides, the NBER might not even announce the recession until it's over. That happened once already.

What does matter is the Fed will likely keep hiking until the economy collapses. It won't be fun. 

This post originated at MishTalk.Com

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