A periodic reminder, 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 September retail sales in August rose 0.4% on a nominal basis. After adjusting for inflation, they rose 0.3%. 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)

Despite the improvement in the past three months, over the longer term 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 -0.7%, which remains problematic as it has all this year:

(Click on image to enlarge)

That’s because, over the past 75 years, a negative YoY comparison in real retail sales has usually meant recession. 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 that the YoY comparison in job reports is likely to continue to fade, despite the excellent September report. Future reports in the range of 75,000 to 175,000 appear more likely. Here is the post-pandemic close-up:

(Click on image to enlarge)

I began to be concerned about this series four months ago. Three months ago I said “The yellow caution flag is up,” and two months I concluded by saying that “the longer real retail sales go without posting a positive YoY number, the more concerned I will be.”Finally, last month I wrote that “This real retail sales report puts … really puts the pressure on initial jobless claims.”

Well, for the last two weeks even excluding hurricanes initial jobless claims have trended higher YoY - not enough to raise a yellow flag in that series, but nevertheless suggesting that the relative weakness in real retail sales, despite this good month, may be beginning to affect the jobs market. Because consumption still leads employment.

More By This Author:

The Shallow Downturn In Industrial Production Continues
Initial Claims: *Maybe* The Onset Of A Concerning Trend, But There Are Distortions Galore
Why Hurricane Effects And Funky Seasonal Adjustments Will Make Tomorrow’s Initial Cliams Report Particularly Fun