The pace of growth in retail sales slowed in November, but the overall trend was still up. We can debate the details of whether a lesser rate of growth is a sign of things to come, but if you’re looking for a smoking gun that screams recession you won’t find it in today’s update on consumer spending.
Seasonally adjusted retail sales rose 0.2% last month, the slowest rise since June and well below Bloomberg's consensus forecast of 0.6%. Some corners of retail reported lower sales on a monthly basis, but the generally rising trend is intact. Notably, the cyclically sensitive auto sector had another good run in November with auto sales up by a tidy 0.7%.
There’s some weakening in the year-over-year pace of retail sales, as the next chart shows. But a degree of downshifting has been expected for this series, which has been rising at an unsustainable pace for some time. Even so, the 6.7% annual rise through November is quite respectable in historical terms, and it’s worth noting that recessions aren’t linked with this level of consumption growth. That’s no guarantee that broad economic expansion will prevail, but the annual rise in retail suggests that the odds of an imminent downturn are still low.
The concern is that the slipping annual rate of growth in retail sales has legs. If so, at some point gravity is the enemy. But it’s too soon to say if we’re in the early stages of breakdown or just the usual statistical noise.
"Sales are growing, but they just aren’t accelerating," notes Ryan Wang, an economist at HSBC Securities. "There have been some real slight hints of improvement in the labor market, but until we get sustained growth in income, spending is going to be moderate."
Nonetheless, "I think we are still on track for a pretty decent holiday shopping season," predicts Mark Vitner, senior economist at Wells Fargo. The level of holiday sales "is still extremely, extremely strong."
Perhaps, but some dismal scientists remain wary in the current climate. MarketWatch reports:
Economists were expecting stronger sales in light of robust demand for automobiles and a record increase in spending during the Thanksgiving holiday weekend, which kicks off each year with the Black Friday shopping bonanza. Economists surveyed by MarketWatch expected retail sales to rise by 0.5% overall, or by 0.4% excluding the auto sector.
Peter Buchanan, an economist at CIBC World Markets, called retail sales a “fairly disappointing report” that could spur some firms to cut their estimates for fourth-quarter growth. The U.S. is projected to grow 3% in the final three months of 2011 based on the latest MarketWatch forecast.
Yes, many of us are prepared for discouraging news. Yet much of the economic updates lately have been mildly encouraging. Is there a disconnect between what's coming and what the numbers tell us? Will the stats be revised down? Is the euro crisis poised to explode and drag us down into recession after all? Or is the trend more resilient than many analysts recognize? These and other tantalizing questions will be answered, but not yet. Meantime, retail sales are softer, but there's still no sign of a downturn in the number du jour. Steady as she goes.