As expected, retail sales eked out a gain in January, rising a seasonally adjusted 0.1% over the previous month, the Census Bureau reports. The rise is unimpressive, arguably due to higher tax rates that kicked in as the new year began. But the fact that consumption held its ground after two months of decent increases suggests that the appetite for spending still has the capacity for forward momentum.
Monthly data is noisy, of course, and so it’s always dangerous to read too much into the latest report. All the more reason to look at the year-over-year change for retail sales, which continues to hold at a modest pace, advancing 4.4% last month compared with the year-earlier level, or roughly in line with the rate of change in recent months.
If and when the year-over-year metric for retail sales begins falling, month after month, we’ll have a legitimate warning sign. All the more so if it’s confirmed in similar trends in other indicators. But there’s no trouble in the numbers from that perspective in today’s report, or in an expansive review of economic and financial indicators.
Sluggish growth in retail sales is what you’d expect with sluggish growth in employment and other macro metrics. The big picture is far from ideal, but it’s familiar at this stage, and it’s probably enough to keep the expansion alive. Indeed, nothing much has changed by looking at the data du jour. Yes, we’re all on hyper-alert in search of warning signs that the cycle is set to crash. We’re all aware that a slow-growing economy is vulnerable to any number of hazards that would be lesser risks if growth was stronger. But the smoking gun has yet to arrive, as a broad reading of the numbers has been telling us all along.
One day the outlook will darken and the deterioration will be increasingly conspicuous in the indicators. But we’re not at that point, and the odds that we will be once all the January numbers are in still looks low. Speculation about what could happen, or not, may convince you to think otherwise. The trouble is that the record on looking more than a month or two into the future on matters macro isn’t much better than a coin flip. That doesn’t mean it’s pointless to model the near-term outlook. The real danger is using speculation as the only input in forming your opinion.