Retail Sales: A Disappointing 0.1% in December

The Retail Sales Report released this morning shows that retail sales in December were up 0.1% month-over-month (but the Census Bureau notes that the statistical confidence range is ±0.5%). That was well below the Briefing.com consensus forecast of 0.4% and Briefing.com's own expectation of 0.5%. The more positive year-over-year change was 6.5%. The first chart shows the complete series from 1992, when the U.S. Census Bureau began tracking the data. I've highlighted recessions and the approximate range of two major economic episodes.

The Tech Crash that began in the spring of 2000 had relatively little impact on consumption. The Financial Crisis of 2008 has had a major impact. After the cliff-dive of the Great Recession, the recovery in retail sales has taken us (in nominal terms) 5.9% above the November 2007 pre-recession peak.
Here is the same chart with two trendlines added. These are linear regressions computed with the Excel Growth function.

The green trendline is a regression through the entire data series. The latest sales figure is 5.7% below the green line end point.

The blue line is a regression through the end of 2007 and extrapolated to the present. Thus, the blue line excludes the impact of the Financial Crisis. The latest sales figure is 16.0% below the blue line end point.

We normally evaluate monthly data on a month-over-month or year-over-year basis. As I mentioned earlier, the December gain was disappointing, well below the Briefing.com consensus forecast of 0.4%. But the 6.5% increase over December 2010 keeps us on the right track. On the other hand, a snapshot of the larger historical context illustrates the devastating impact of the Financial Crisis on the U.S. economy.

The "Real" Retail Story: The Consumer Economy Remains in a Recession
How much insight into the state of the economy does the nominal retail sales report offer? The next chart gives us a perspective on the extent to which this indicator is skewed by inflation and population growth. The nominal sales number shows a cumulative growth of approximately 143.9% since the beginning of this series. Adjust for population growth and the growth drops to 98.5%. And when we adjust for both population growth and inflation, retail sales are up only 21.3% over the past two decades.

The charts below give us a rather different view of the U.S. retail economy and the long-term behavior of the consumer. The sales numbers are adjusted for population growth and inflation. For the population data I've used the Bureau of Economic Analysis mid-month series available from the St. Louis FRED with a linear extrapolation for the latest month. Inflation is based on the latest Consumer Price Index. December retail sales adjusted accordingly rose 0.1% month-over-month but only 2.4% year-over-year, far less than the 6.5% nominal YoY increase.

Consider: During the past 20 years, the U.S. population has grown by 23% while the dollar has lost about 39% of its purchasing power to inflation. When we adjust accordingly, the rebound in retail sales from the bottom in April 2009 merely gets us back to the per capita spending of December 1999, over twelve years ago.

Retail sales have been recovering since the trough in 2009. But the "real" consumer economy, adjusted for population growth is still in recession territory — 7.0% below its all-time high in January 2006.

As I mentioned at the outset, nominal retail sales were up in December. However, gasoline prices can act as a tax on economic growth: The more we spend on gasoline, the less we have to spend on other goods. With this concept in mind, let's look at the real, population-adjusted retail sales excluding gasoline.

By this analysis, adjusted retail sales ex gasoline rose 0.3% in December from the previous month and rose a mere 2.1% year-over-year, but it is down 8.7% below its all-time high in January 2006.

The Great Recession of the Financial Crisis is behind us, but a close analysis of retail sales suggests that the recovery has been weak. And in "real" terms — adjusted for population growth and inflation — consumer sales remain at approximately the same level as the middle of the last recession.