Let me start with my usual reminder that real retail sales is one of my favorite economic indicators, because it tells us so much about the state of the consumer, and since consumption leads employment, it is a short leading indicator for that as well.

In October retail sales rose 0.4% on a nominal basis. After adjusting for inflation, they rose 0.2%. There were also important positive revisions to September, which increased from a 0.4% gain to a 0.8% gain. 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:

Since the end of the pandemic stimulus in spring 2022, real retail sales had been trending generally flat to slightly declining, while real personal consumption expenditures on goods continued to increase. In the last four months, however, real retail sales appear to have broken out to the upside, in accord with the positive trend in real spending on goods, which is very positive.

An important reason why this breakout is so positive is that, on a YoY basis, real retail sales had been negative almost all this year. And over the past 75 years, a negative YoY comparison has usually meant a recession followed shortly (although that wasn’t the case in 2022 and 2023). But with this month’s data, YoY real sales are up 0.3%:

I had been increasingly concerned about the YoY trend in sales over the previous four months. For example, three months I concluded by saying that “the longer real retail sales go without posting a positive YoY number, the more concerned I will be.” The October number plus the September revision takes some of the pressure off.

Finally, real sales are a good if noisy short leading indicator for employment, as shown in the historical pre-pandemic graph below:

Despite the recent uptrend in real sales, since consumption leads employment and a 0.3% YoY gain is still very weak, this continues to forecast that on a YoY basis, job gains are likely to continue to decelerate. As you probably recall, the very poor October jobs report was distorted by hurricane impacts. Most of these will probably be reversed in the November report. But the three month trend of reports in the range of 75,000 to 175,000 appears likely. Here is the post-pandemic close-up:

Obviously this was a very good report. But we’re not completely out of the woods yet.

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