Patterns Of Consumption In March Rebounded From Near-Recessionary Winter Levels

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by: Hale Stewart

This morning's personal income and spending report for March serve as a nice juxtaposition to yesterday's GDP report.

One of the relationships I track is real retail sales vs. real PCEs. In virtually every business cycle since World War 2, retail sales started out stronger than PCEs, but then faded later on and continuing into the next recession. The reason is that retail sales measure more discretionary spending vs. necessities compared with PCEs, and consumers cut back on their discretionary spending first.

Now that we have all of the first quarter's data, let's first looks at real retail sales YoY (blue, monthly) vs. PCEs (red, quarterly):

Notice that real retail sales fell to near recessionary levels before rebounding in March as compared with PCEs.

A similar relationship can be tracked by comparing PCEs on durable vs. nondurable goods. As this first graph, averaged quarterly for the last 50 years shows:

Consumers cut back on big ticket discretionary durable goods spending before they cut back on nondurables, which include necessities like food and energy. When durable spending YoY approaches zero, a recession has typically started.

Now here's a close-up of the last 10 years, measured monthly:

You can see that durable goods were just barely positive YoY in January and February, but rebounded in March. This is fully in line with the flatline GDP report yesterday.

If it weren't for the unusually severe winter weather in most of the U.S., I would view this as being consistent with the cusp of a recession. For me to be more sure that isn't the case, I want to see the rebound continue in April as well.

Originally published on by New Deal Democrat