Retail sales declined -0.1% in June, but since consumer inflation also declined -0.1%, real retail sales were unchanged for the month. There was an upward revision to May which helped out the comparisons slightly, but for the entire first half of this year real retail sales have been treading water at a level below last year. The below graph is normed to 100 as of right before the pandemic, and shows the similar measure of real personal consumption of goods (light blue) as well:

(Click on image to enlarge)

There’s been a general slight downtrend in real retail sales ever since the burst of pandemic stimulus spending in early 2021, that fortunately has not been confirmed by the broader measure of real personal spending on goods. On the other hand, real personal consumption of goods has also been lower all this year so far from its peak last December.

We are also down -0.7% YoY:

(Click on image to enlarge)

Although I won’t bother with the historical graph this time around, I’ve note previously In the entire history of real retail sales going back 75 years, much more often than not such downturns foreshadowed a recession within half a year.

Last month I wrote that “the negative YoY retail sales for four of the first five months of this year [ ] is now a real concern, although it has not been confirmed by the similar metric of real personal spending on goods.”

I also said that “Since we are now over three years past the last pandemic stimulus, I suspect real retail sales are also giving a more accurate signal for employment (red in the graph below) in the months ahead, as they did for decades before the pandemic [Here’s the updated graph for this month]:

(Click on image to enlarge)

“Consumption has historically led employment, and this suggests weaker monthly employment reports in the months ahead.” 

It’s worth noting that in the graph above, real personal spending on goos is also lower YoY than payroll employment. It’s also worth recalling that there is good reason to believe that the payroll employment gains of 225,000-300,000 one year ago are likely to be revised significantly lower in view of the poor QCEW comprehensive census for the last two quarters of 2023.

My concluding remark last month was that, especially in view of the relatively poor numbers since the start of this year, real retail sales had to be regarded as raising a caution flag for the economy. That is if anything even more true this month, with an additional month of data, especially where an important component of the economically weighted ISM indexes released at the beginning of this month showed contraction in June.

The yellow flag is up. We’ll get important information about both the manufacturing and construction sectors tomorrow.

More By This Author:

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