US retail sales…Is the Sun really shining again?

Retail sales takeaways:

  • In rebound mode, but nothing as yet to suggest trend of slowing growth cycles has been broken.
  • Motor Vehicle and Parts sales, a key driver of sales growth heretofore, looks to have slipped to a much lower gear: less consumer credit growth fuelling demand?
  • Retail sales adjusted for CPI ex shelter and adjusted for population growth only just bubbling up around pre crisis levels.
  • Seasonality: some questions over the extent to which seasonality is impacting the data.
  • Inventory to retail sales growth at historically high levels: economy exposed to heightened short term risks to spending.
  • CPI ex shelter, flatlining post 2012.
  • Boundaries to retail sales growth: consumer credit to disposable income ratios, long term income growth declines, peak personal consumption expenditures and continuation of weak profile post late 1990s: longer term dynamics at play.

Retail sales picked up again in June in what looks, at one level at least (quarterly growth rates), to be a repeat of 2015:

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If we smooth out the ups and downs we see nothing as yet to suggest that retail sales growth is going to break out of it weakening trend.

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Even if we crudely adjust for CPI (ex shelter), we also see a declining growth trend:

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Adjusting for population growth (up to May 2016) we can see this trend, recently quite low but apparently stable, firmly in place:

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Of note is the recent weakening in motor vehicles and parts sales: MVP sales have been an important part of retail sales growth in the last few years:

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If we look at the wider frame we see that per capita retail sales have barely managed to climb back to pre crisis levels (again crudely adjusted for CPI ex shelter):

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Other points of interest:

Seasonal adjustment: retail sales spiked in April and June, but the increase is largely due to seasonal adjustments.  Both April and June have typically seen unadjusted declines in retail sales.  That said a smaller than usual decline is a positive although it is unclear as to how much seasonality remains in the data as even a casual glance can discern a regular pattern.

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Retail sales inventories are historically high when we look at the change in inventories relative to the change in retail sales:

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Consumer price inflation (ex shelter) has been non existent since late 2012.

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There would appear to be some leeway for additional expenditure if we look only at the increase in personal disposable income relative to retail sales:

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Yet, consumer credit as a % of disposable income remains on the rise suggesting income/retail sales growth is increasingly leveraged:

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It is worth noting that consumer credit spent in one period becomes revenue and hence incomes in the next.  

Also the potential for outsized consumption growth beyond current growth rates, especially given the leverage behind consumption, is likely constrained by high % personal consumption expenditure to personal disposable income rates:

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And we can see that the wider personal consumption expenditures component of GDP has been growing much more slowly in nominal terms post late 1990s:

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Especially so with per capita chained personal disposable income growth close to multi decade lows: shorter term disposable income growth is of a higher order, but what I am focussing on here is consumption capacity which is a function of a wider income set.

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Retails sales growth has also moved back into line with the annual increase in hourly earnings of all employees and this may be reflective of the more pedestrian growth rates we should expect from now on:

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Naturally, hourly earnings growth diverges from growth in wage flows as employment rises, but we have also seen a slowdown in employment growth of late:

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