Real retail sales in July showed more stagnation, but slightly positive year-on-year

by a New Deal Democrat

Consumption leads to employment. Rising demand for goods and services causes employers to hire more people to meet that demand. This, in a nutshell, is the biggest reason why real retail sales is one of my favorite economic indicators.

In July, nominal retail sales rose by less than 0.1%, rounding to 0. Consumer prices fell by less than -0.1%, also rounding to 0. But the combination was enough to push real retail sales to round up to +0.1%:

Still, real retail sales remained -1.1% below their April peak:

Interestingly, while, as noted above, nominal total retail sales were flat, retail sales excluding motor vehicles increased 0.4% and retail sales excluding vehicles and gas increased increased by 0.7%. Since March 2021, total nominal retail sales have increased by 9.6%, and old vehicles and gasoline are up 9.4%, but excluding vehicles only up 13.4%:

[Note: retail ex gas and vehicles has not updated yet on FRED, so June and July of that series are not shown]

This shows that consumers are avoiding buying motor vehicles given their large price increases, as shown in this chart I made when the CPI was updated earlier:

It also suggests that a big reason for the reduced consumer spending this year is the large increase in the prices of cars and SUVs. In other words, the chip shortage is a big economic deal.

That being said, year-over-year real retail sales, which have been negative for the past few months, are now up 1.7%:

This is a good sign, as negative annual real retail sales have typically been a marker of a recession, but positive annual real retail sales have historically only occurred either in expansions or at the end of recessions (ie. f. a short leading indicator of an incipient recovery). In other words, another sign that the US economy is not currently in recession.

Finally, as noted above, real retail sales are a good short leading indicator of employment. Here is the long-term perspective from 1993-2019:

And here is the last year:

Even with the sharp increase in employment in July, year-over-year job growth continued to slow, and I expect it to slow further, perhaps sharply.

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