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By New_Deal_democrat February 16, 2018 8:40 am
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Real retail sales in depth: positive for 2018
January retail sales were reported on Wednesday.  This is a good time for me to update my look at real retail sales, which I find to be one of the most useful metrics to gauge the economy in several ways.
November and December's surge was revised downward, and January's nominal decline of -0.3%, coupled together with the CPI increase of +0.5%, means that real retail sales declined -0.8%:
This nevertheless means that real retail sales are significantly better than any reading before last September. That's still positive.
Next, I found about 10 years ago that the YoY% change in real retail sales (/2) is a noisy but good short leading indicator for the YoY% change in jobs:
While the YoY increase in real retail sales from 2016 to 2017 isn't nearly as pronounced as the late 1990s surge, it does suggest that the recent string of good jobs reports will continue at least for a few more months.
Finally, real retail sales per capita have turned about 12 months before each of the last two recessions.  Right now, though, they are still doing well:
Since the monthly data is somewhat noisy, can we usefully tune out that noise to get a decent real time signal?  I think so.  Here is YoY real retail sales per capita, measured in 6 month increments:
Note that the 6 month change in the YoY% growth of real retail sales per capita turned negative more than a year before the onset of each recession.
Thus, if we take the moving average of this six month YoY change, we should get a useful advance signal. Based on the last two expansions and recessions, if this moving average falls below +0.3% YoY, I will change my rating of this long leading indicator to neutral.  It will be a negative if it goes below zero.
As of January, the moving average is +0.6%, suggesting continued growth for the next 12 months.
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