The Week In Review: Retail Sales Confirm A Slowing Economy

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by: Steven Hansen
Summary

December retail sales disappointed.

The three-month rolling average has been declining for the last four months.

When the data is inflation adjusted - there's little growth in retail sales.

Retail sales for December 2018 showed consumers backed away from the spending trough. Is this a precursor for things to come? The retail sales release for December was delayed due to the government shutdown.

To understand graphically how bad the headline data was for retail sales, the graph below adjusts the headline data for inflation - and it shows year-over-year growth for December at less than 1%.

Using this headline view, December retail sales showed the worst growth of any December since 2009. However, I have little trust that seasonal adjustments used in the headline view properly convey trends.

Using the unadjusted data, the three-month rolling average has been declining for the last four months - declining from over 6% to 4.2%. Worse, the real (inflation adjusted) year-over-year growth rate for the month of December using the unadjusted data is only 0.2%. Overall this does not look positive for 4Q2018 GDP (whenever it will be issued).

The rolling averages belie any opinions that the problem with December retail sales was a result of shoppers time shifting their purchases into October and November. As retail sales are monetary based, it does not preclude deeper discounting by retailers - but one would think the savings would be used to purchase other holiday items.

All of the leading indicators predicted this slowing but the market expectations (from Econoday) did not.

seasonally adjusted Consensus Range Consensus Actual
Retail Sales - M/M change -0.1 % to 0.4 % +0.1 % -1.2 %
Retail Sales less autos - M/M change -0.2 % to 0.4 % +0.1 % -1.8 %
Less Autos & Gas - M/M Change 0.3 % to 0.5 % +0.4 % -1.4 %
Control Group - M/M change 0.2 % to 0.5 % +0.4 % -1.7 %

This shows the market tends to ignore leading indicators and concentrates on extrapolating hard data to predict the future. I generally do not have an issue with this approach, but I do not ignore leading indicators and factor them into my "guesses." Our own leading indicator has been slowing for the last six months.

Little of the data I'm currently seeing suggests anything but a slowing economy.

Economic Releases This Past Week

The Econintersect Economic Index for February 2019 insignificantly declined and remains below territory associated with normal expansions. The question remains whether this downward trend will continue. Note, our index is built on data sets which were not affected by the government shutdown - and it's most likely that other recent economic forecasts you have seen fudged the missing data. A forecast with fudged data is simply a guesstimate.

The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.

Other Economic Release Summary For This Week

Release Potential Economic Impact Comment

December Job Openings and Labor Turnover

Positive as there are more potential jobs

The job openings level reached a series high of 7.3 million. There is a positive correlation between jobs open and employment gains. More employment puts more money into consumers hands.

January CPI theoretically positive

Mainly due to energy prices, inflation again moderated to 1.6% growth YoY (CPI-U). Usually lower inflation puts more money into consumer's pockets - but this is the New Normal and lower inflation can simply be a reflection of lower demand.

January Producer Price Index little Producer prices continued to moderate (from 2.5 % to 2.0 %) driven mostly by lower energy prices.
December Retail Sales indicating a slowing economy

The rolling averages declined. When the data is inflation adjusted - there is almost NO year-over-year growth.

November Business Sales and Inventory Indicating a marginally slowing economy

Inventories marginally declined this month. Our primary monitoring tool - the 3 month rolling averages for sales - declined again but remains in expansion. As the monthly data has significant variation, the 3 month averages are the way to view this series. Overall business sales are improving since the low point in 2015 - and the trend over the last 6 months shows little change in the rate of growth - although this month it is in the lower part of ranges seen..

January Import and Export Prices theoretically positive

Year-over-year import prices and export prices again declined significantly. The decline in prices was not expected. Month-over-month price index for fuel imports decreased (and non-fuel imports was unchanged) - and the price index for agricultural exports increased.

January Container Counts showing economy is slowing Simply looking at this month versus last month - January was a weaker month. The three month rolling average declined for imports but remains positive. The three month rolling average for exports is deep in contraction year-over-year. Looking at other transport data, this softness seems to have little to do with trade wars - but seems to be related to consumer spending.
January Industrial Production showing economy is slowing The headlines say seasonally adjusted Industrial Production (IP) declined month-over-month. Our analysis shows the three month rolling average insignificantly declined. Industrial production remains in a short term down trend. Note that manufacturing portion of industrial production significantly declined.
Surveys Surveys mixed

NFIB Small Business Optimism decllined to the lowest since the weeks leading up to the 2016 elections, although remains well above the historical average of 98, but indicates uncertainty among small business owners due to the 35-day government shutdown and financial market instability.

The Empire State Manufacturing Survey index improved and remains in expansion. Overall this survey remains near the lowest values seen in the last year. With both the main index and key indices improviing, this was a better report than last month.

Weekly Rail Counts Definitely not positive news Rail in just three weeks has changed from a reflection of a strong economic engine to showing little or no growth. The economic intuitive components of rail are in contraction.

This week the data is mixed but predominately showing a slowing economy.

My usual weekly wrap is in my instablog.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.