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By New_Deal_democrat March 13, 2015 9:25 am
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US retail sales: a slowdown, yes, but wait for the inflation adjustment

Yesterday's retail sales report looked mighty poor, down -0.8% m/m.  It was the third straight decline in this metric.

Three important points need to be made:

First, a slowdown in consumer purchases is not surprising, given the slowdown in housing in late 2013 and early 2014.  The slowdown troughed 1 year ago.  Since usually trends in housing spread through the economy in about a year or so, we have been on track for this.

Here's a graph showing housing permits, motor vehicle sales, and real retail sales normed to 100 as of June 2013:

Housing declined first, cars and light trucks have declined in the last 4 months, and real retail sales through January have turned down slightly since November.

Second, it is important to keep inflation in mind.  Yesterday was a nominal number.  In January, for example, the big -0.7% decline translated into only a -0.1% decline after adjusted for inflation.  Here is a graph comparing nominal and real retail sales:

Consumer prices for February won't be reported until March 24, but this morning February producer prices were reported down -0.5%.  Similarly, while personal spending for January was reported down -0.2%, after adjusting for inflation, it was actually up +0.3%.

Additionally, yesterday showed that the US is importing deflation in a big way:

Finally, as I have previously pointed out, in the past where there have been substantial declines in oil prices, consumers have initially pocketed the savings.  For example, as shown in this next graph, in 1986  consumers waited a year before they started to spend their gas savings:

So, while yesterday's retail sales report was negative, it is important to reserve judgment until we see how it looks in real, inflation-adjusted terms.A slowdown is anticipated, but I am still not concerned about any sustained contraction.

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