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posted on 19 August 2017

Is Retail Sales Foretelling Economic Growth?

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This week there was a significant improvement in retail sales. Does this mean the economy is starting to gain traction?

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Retail sales is the engine for the economy. And seeing the headlines scream the retail sales improved 0.6 % month-over-month and up 3.9% year-over-year (seemingly about double GDP growth) could have one jumping to the conclusion the economy is doing well.

But the reality is the headline month-over-month figures are usually misleading as it compounds errors and exaggerates monthly fluctuations. in addition, both the month-over-month and year-over-year figures are not adjusted for inflation.

Once you inflation adjust - retail sales grew +0.5 month-over-month and +2.5 % year-over-year.

In the period between 2010 and 2014 retail sales literally drove the USA economy - retail sales (red line in the graph below) shows the year-over-year growth allmost double of GDP growth. Since 2014 retail sales year-over-year rate of growth has correlated to economic growth. And both the economy and retail sales have been moderately accelerating since 2016.

And July 2017 marks the first month since the Great Recession that real per capita spending exceeded the pre-Great Recession highs. In other words, an 11-year depression in retail sales has finally ended.

For my complete analysis of retail sales [click here]..

It does seem that the economy is improving - but at a slower rate than the headlines are suggesting. At this point slow and steady improvement is good.

Other Economic News this Week:

The Econintersect Economic Index for August 2017 appears to forecast static economic growth fundamentals - with the index showing normal growth for the fourth month in a row. Six-month employment growth forecast indicates modest improvement in the rate of growth.

Bankruptcies this Week from Crossroads Systems

Weekly Economic Release Scorecard:

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