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By New_Deal_democrat March 16, 2017 10:38 am
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Real retail sales and the 2017 outlook

As I've said many times, real retail sales is one of my favorite measures of the economy, because it imparts so much information about the broader economy as well.

Let's stat with the raw data.  In February, both nominal retail sales and consumer inflation rose about +0.1%, which means that real retail sales were flat: 

The overall rising trend has not been disrupted, which tells us that the economy is still expanding.

But real retail sales, with the recent exceptions of the year immediately following a recession (2002, 2010) do a good job forecasting the trend in job growth 3 -6 months later:

The increasing trend in YoY% measures of real retail sales that was evident in the last half of 2016 into January forecasts good payroll reports in the first half of this year, and this has been the case in January and February. 

In 10 of 11 times in the last half century, that real retail sales YoY are lower than real personal consumption expenditures YoY has told us that we are in the latter half of the expansion, Further, when both are decelerating, and retail sales are decelerating more than personal consumption, that has been the marker of the final stage of the expansion:

As of February, this tells us that we are well past the midpoint, but not yet in any final deceleration.

Finally, real retail sales per capita have typically peaked with considerable variation about 1 year before the onset of recessions:

This measure has essentially been flat since December.  It is far too early to say if that will mark a peak.

In sum, real retail sales tell us that we are later in the expansion, but with no recession imminent, and significant employment gains likely to continue in the near future.

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