Today’s update on retail sales certainly lends more credence to the notion that the economy is stabilizing and perhaps even poised for modest growth. Indeed, the 2.7% rise in seasonally adjusted retail sales in August was the highest monthly increase since January 2006.
Even better, a closer reading of the report shows that gains were broad based–only furniture/home furnishing stores and building materials/garden equipment establishments posted lesser sales on the month, seasonally adjusted.
But we should be cautious in reading too much into the numbers. Keep in mind that motor vehicle sales lead consumption higher in August. The government’s cash-for-clunkers stimulus program was clearly a factor. But the auto phase of the government’s fiscal stimulus is history, at least for the moment.
There’s more fiscal stimulus coming, of course. Only a fraction of the $792 billion stimulus monies have been spent, according to ProPublica. Meanwhile, the Federal Reserve continues its liquidity injections on the monetary front. Deciding how it all translates into retail sales, or not, and other economic measures is the new new game in the dismal science. At least one economist (Robert Hall of Stanford) thinks that the slow rollout of stimulus spending may be a postive. He considers a macro model that shows that “the much criticized slow ramp-up of the stimulus was actually benecial,” via a paper presented last week at a Brookings Institution conference.
Meanwhile, we should be mindful of how far retail sales have fallen recently in absolute terms, a sore statistic that’s minimized by looking solely at percentage changes. As our second chart below reminds, retail sales last month were roughly 7.5% lighter relative to the all-time high set back in November 2007, the month before the recession officially began, as per NBER. Regaining the lost ground in absolute terms is going to take time and come in fits and starts. True for retail sales and for other critical corners of the economy, most notably in the labor market, which is still losing ground based on the latest numbers. Stimulus may be helpful, but it can’t last forever, and the jury’s still out on when Joe Sixpack’s able and willing to return to his consumption habits of yore sans Uncle Sam’s help.
Nonetheless, we’re encouraged by the various signs of stabilization and rebound, including today’s retail sales numbers. It could have been worse. Recovery has to start somewhere, even if it’s marginal, tenuous, subject to revision and the byproduct of government help.
In any case, today’s gains don’t surprise us. As we’ve been writing for some time, several metrics have been pointing to improving odds for an upturn in the business cycle. The details are messy, but the basic trend has been suggested in a variety of economic reports and statistics in recent months. Today’s retail sales report provides one more data point for embracing what we’ve been seeing since at least March: hopeful signs for the future are bubbling. But in some respects the easy work is over. A big question: When will the economy begin to walk on its own?
The answer lies in the future. Meantime, we’ll get another clue in next month’s retail sales report that offers spending habits in the post-cash-for-clunkers climate. Meantime, we dodged another bullet.