If you can handle a sliver of good economic news, I've got some for you. All of the recent data has shown an economy in free-fall, but the collapse that started with the shock of "Black September". at least on consumer non-durable spending, might be wearing off somewhat. Like Freddy Kreuger, Michael Myers, or Jason Voorhees, it appears that the American consumer simply refuses to stay dead, but instead is rising, zombie-like, from the grave to spend another day.
Today we got some data in support of that idea. I'll explain why that is good for economic recovery.
The daily onslaught of corporate failures and panicky government bailouts in September, followed by the halving of 401k's into 201k's during the early October stock market crash, caused shellshocked American families to abruptly halt spending -- a precipitous shock that transformed a "Wall Street" recession into calamity by sending the entire "Main Street" economy into a deathly tailspin.
Late in February I notice that, at least for smaller ticket items, the shock might be wearing off.
Private retail service Shoppertrak issues weekly bulletins about foot traffic and sales in the nation's malls. While not a perfect indicator, it is both more frequent and also a separate source to compare with the official data. In the past it has provided early indications of the holding up -- or not -- of the consumer. For example, by the end of September it had published a special note on the collapse of foot traffic that month, the first indication of the appearance of the consumer collapse of "Black September."
By late February, it seemed to be signalling that consumers have mainly, but not completely, returned to their pre-September behavior. Keep in mind that due to population increases, a 1% Year over Year increase in retail sales adjusted for inflation (not done in the tables below) should be the norm. The first table is weekly (except aggregated for the holiday season):
Week | YoY % Change |
2/21/09 | (-0.5%) |
2/14/09 | (-1.2%) |
2/7/09 | (-2.9%) |
1/24/09 | (-4.1%) |
1/17/09 | (-3.8%) |
Xmas | (-4.4%) |
11/15/08 | (-3.1%) |
11/8/08 | (-2.6%) |
11/1/08 | (-1.1%) |
10/25/08 | +1.0% |
10/18/08 | +1.1% |
10/11/08 | (- 1.0 %) |
The second table is the same data aggregated by month. Note that due to differences in volume (e.g., Valentine's Day sales) you cannot simply average the weeks):
Month | YoY % Change |
1/09 | (-3.8%) |
12/08 | (-4.5%) |
11/08 | (-4.3%) |
10/08 | (-1.4%) |
9/08 | (-2.0%) |
8/08 | (+3.5%) |
I wrote at the time on The Economic Populist that if Shoppertrak's data was any indication, February retail sales would not show the cliff-diving of the holiday season.
Mall traffic is not the only indication that consumers are returning to their former ways. Petroleum usage has, for the first time since the beginning of 2008 shown a year over year increase:
I have been keeping good company on this observation, as Russ Winter has noticed this too:
Joe [Sixpack] has even been saving some money. And now there are clear signs that he is crawling out of the bunker, and "normalizing" or "naturalizing" his behavior.
Even if the US consumer has not remained in capitulation on ordinary day-to-day items shown in retail sales (blue in the graph below), I would not expect that to be translated into bigger-ticket durable goods items such as cars -- or houses (red in the graph below):
Sure enough, in late February the Bureau of Economic Analysis gave a positive surprise in personal spending was for January.
Subsequently, as expected, manufacturers reported that auto sales continued to be cut in half. But then the ISM services index declined further in Febraury, and Shoppertrak reported a (- 6.8%) YoY decline in retail sales for the last week of February. It appeared that US consumer might be re-interred after all.
But today, Bloomberg reported that:
Sales at U.S. retailers in February fell less than forecast and January’s gain was almost double the previous estimate, indicating the biggest part of the economy may be starting to stabilize.
Purchases decreased by 0.1 percent, led by the slump in demand for cars, following a revised 1.8 percent jump in January, the Commerce Department said today in Washington. Excluding automobiles, sales unexpectedly climbed 0.7 percent.
Please note that gasoline sales, which continued to (cough, cough) tank, are a significant part of even the -0.1% decline.
This supports the idea that consumers are normalizing their spending on smaller items, even while big ticket durable purchases like cars continue to swoon.
So why is this good news for the economy? Because it suggests that the largest part of the economy -- the 70% represented by consumer spending -- may be stabilizing. We don't want nor need consumers to return to the profligate debt-soaked habits of a few years ago. Consumers have finally begun to save again - most recently at a 5% rate - which in the long run is good. But on the other hand, we don't want consumer sales to be in free-fall. That is disastrous for the economy. What we want is for consumer spending to be stable, perhaps very slightly positive year-over-year, to help get the economy moving forward.
I'm not saying "happy days are here again" by any stretch (as this morning's jobless claims demonstrated). The best we can hope for is stabilization followed by a few years of anemic growth.
Today's retail sales data is a glimmer of hope that we might get there.
UPDATE: Calculated Risk agrees with me:
All things considered, this is a decent retail sales report. Q1 retail sales are still about 1.4% below sales in Q4, but it appears that sales might have stabilized - especially ex-auto.
It now appears that Q1 GDP will be very weak - because investment is falling off a cliff and there is a significant inventory correction in progress - but Q1 PCE might only be slightly negative.