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By New_Deal_democrat December 18, 2014 2:10 pm
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The important story told by real retail sales

Real retail sales is one of my favorite economic metrics.  Depending on how it is measured, it has value as a long leading indicator, a short leading indicator for jobs, a coincident indicator, and a mid-cycle indicator.  Let's look at each in turn.

First, here is real retail sales per capita:

Measured per capita, real retail sales almost always turn down a year before the economy as a whole does.  As you can see, these are still trending upward, giving me increased confidence about the economy in 2015.

Second, real retail sales almost always lead job growth or losses by about 3 to 6 months.  Here they are measured YoY (averaged quarterly to cut down on noise) vs. jobs in the private sector:

A several-month long spike up or down does not necessarily translate into increased or decreased job growth - which is why the spike down in real retail sales during last year's "polar vortex" winter in the US did not adversely impact job growth.  Note this graph does not show the surge in retail sales in the last two months.  This graphs suggests continued job growth in the private sector of 200,000+ over the next few months.

Third, it is thought that the NBER uses real retail sales, among other measures of sales, in determining the turning points in economic cycles.  Here are real retail sales, measured absolutely, and also jobs in the private sector:

This simply confirms that, yes, we are in an economic expansion.

Finally, when compared with real personal consumption expenditures, real retail sales appears to serve as a mid-cycle indicator, out performing PCE's in the first part of an expansion, and underperforming in the latter part.  Since retail sales is less weighted towards necessities than is the broader PCE metric, the thought is that consumers start to cut back on luxuries before they cut back on necessities.  Here they are measured YoY:

After dipping below PCE's earlier this year, real retail sales may have started to outperform again.  A few more months' worth of comparison should tell us whether or not we are in the latter part of the expansion.

Taken all together, the various measures of real retail sales suggest that we are slightly past the mid-point of this expansion, but more than a year away from its end, and that over the near term, we can continue to expect strong jobs growth.

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