One of my favorite bits of economic data, retail sales, did no better than treading water in August.

On a nominal basis, retail sales in August rose 0.1%, but after an upwardly revised blowout 1.3% in July. Which means, after adjusting for inflation, they declined -0.1%. The below graph norms both real retail sales (dark blue) and the similar measure of real personal consumption of goods (light blue) to 100 as of just before the pandemic:

(Click on image to enlarge)

Since the end of the pandemic stimulus in spring 2022, real retail sales have been trending generally flat to slightly declining, while real personal consumption expenditures on goods have continued to increase.

On a YoY basis, real retail sales continue to be negative, at -0.4%, which remains problematic as it has all this year:

(Click on image to enlarge)

That’s becuase, although I won’t bother with the graph, a negative YoY comparison in real retail sales over the past 75 years has usually meant recession. As I said last month, obviously that wasn’t the case in 2022 and 2023, but at some point the historical relationship is likely to be valid again.

Finally, since real sales are a good if noisy short leading indicator for employment, here is the above YoY graph adding YoY payroll gains (red):

(Click on image to enlarge)

This forecasts continued weak job reports in the range of 75,000 to 175,000 in the months immediately ahead.

Three months ago I wrote for the first time that real retail sales had to be regarded as raising a caution flag for the economy. Two months ago I amplifyied that to say“The yellow caution flag is up,” especially in conjunction with the negative ISM manufacturing and non-manufacturing numbers. And last month I concluded by saying that “the longer real retail sales go without posting a positive YoY number, the more concerned I will be.”

At the beginning of this month, the economically weighted ISM indexes came within a hair’s breadth of warranting a “recession watch.” This real retail sales report puts even a little more weight on the scale, and really puts the pressure on initial jobless claims, which have remained assiduously positive, but from this Thursday forward for the next half year will turn neutral or even negative to the extent they are above 220,000.

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