Are Retail Sales Foretelling Economic Growth?

This week there was a significant improvement in retail sales. Does this mean the economy is starting to gain traction?

Retail sales are the engine for the economy. And seeing the headlines scream that retail sales improved 0.6 % month-over-month and are up 3.9% year-over-year (seemingly about double GDP growth) could have one jumping to the conclusion the economy is doing well.

But the reality is the headline month-over-month figures are usually misleading as it compounds errors and exaggerates monthly fluctuations. In addition, both the month-over-month and year-over-year figures are not adjusted for inflation.

Once you inflation adjust – retail sales grew +0.5 month-over-month and +2.5 % year-over-year.

In the period between 2010 and 2014 retail sales literally drove the USA economy – retail sales (red line in the graph below) shows the year-over-year growth almost double of GDP growth. Since 2014 retail sales year-over-year rate of growth has correlated to economic growth. And both the economy and retail sales have been moderately accelerating since 2016.

And July 2017 marks the first month since the Great Recession that real per capita spending exceeded the pre-Great Recession highs. In other words, an 11-year depression in retail sales has finally ended.

For my complete analysis of retail sales [click here].

It does seem that the economy is improving – but at a slower rate than the headlines are suggesting. At this point slow and steady improvement is good.

My usual weekly wrap is in my instablog.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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