At long last a bit of good news: retail sales rose last month by 0.2%, reversing February’s stumble and bringing hope to the dwindling number of optimists who think economic growth will remain intact. But while Wall Street may be inclined to jump on the news as a reason to buy, the bigger trend in retail sales can’t be denied.
Indeed, as our chart below reminds, the cycle in consumer spending is still clear, which is to say: down. Over the past year through March 2008, advance estimates of U.S. retail and food services sales rose 2.3%, or near the lowest annual pace since the previous down cycle of 2001-2003.

What’s more, other than the positive sign that precedes the number, last month’s rise in retail sales isn’t all that impressive as increases in this data series go. In fact, March’s gain of 0.2% (0.15% if you carry it out to two decimal points) could hardly be more frugal relative to past monthly reports of recent vintage, as our second chart below shows.

So, yes, monthly data is filled with statistical noise, tempting false impressions for those looking for broader trends. As such, no one should be surprised to see a month or two of relatively large gains in the near future. But that by itself doesn’t change the fact that the economy’s slowing and probably is set to contract for at least a time this year. No, it’s not the end of the world, nor is the contraction doomed to run on for anything longer than what passes for a normal stretch. Of course, no one really knows and so the guessing game rolls on.

Keep in mind, too, that a reprieve, if only temporary, is coming. Just don’t let it overwhelm your sense of cyclical perspective. In any case, The Treasury’s so-called stimulus checks are set to begin rolling out next month, and the expectation is that more than a few consumers will spend their manna from Washington. Retail sales, no doubt, will enjoy a boost, perhaps as early as June or July. Of course, it’s unclear what percentage of those who receive a check will run out and spend it vs. saving it or paying off debt previously incurred. Meanwhile, we won’t have a clear picture of the effect, one way or another, until the government updates us, which will probably come no sooner than August, courtesy of the lag in retail sales numbers.
Even if the stimulus juices growth for a time, it stands to reason that the effect will be temporary and that the slowdown/contraction will return in the third or fourth quarter. At that point, the burning question will be one of deciding if the economy has recovered sufficiently on its own to provide self-sustaining growth.