Note from dshort: With the tidal wave of mid-month economic data, I failed to post my usual review of population-adjusted real retail sales. Here is the missing update.
With the subsequent release of the Consumer Price Index, we can now dig a bit deeper into the "real" data, adjusted for inflation and against the backdrop of our growing population.
The first chart shows the complete series from 1992, when the U.S. Census Bureau began tracking the data in its current format. I've highlighted recessions and the approximate range of two major economic episodes.
The Tech Crash that began in the spring of 2000 had relatively little impact on consumption. The Financial Crisis of 2008 has had a major impact. After the cliff-dive of the Great Recession, the recovery in retail sales has taken us (in nominal terms) 16.3% above the November 2007 pre-recession peak to a record high.
Here is the same chart with two trendlines added. These are linear regressions computed with the Excel Growth function.
The green trendline is a regression through the entire data series. The latest sales figure is 4.4% below the green line end point.
The blue line is a regression through the end of 2007 and extrapolated to the present. Thus, the blue line excludes the impact of the Financial Crisis. The latest sales figure is 19.2% below the blue line end point.
We normally evaluate monthly data in nominal terms on a month-over-month or year-over-year basis. On the other hand, a snapshot of the larger historical context illustrates the devastating impact of the Financial Crisis on the U.S. economy.
The "Real" Retail Story: The Consumer Economy Remains at a Recessionary Level
How much insight into the US economy does the nominal retail sales report offer? The next chart gives us a perspective on the extent to which this indicator is skewed by inflation and population growth. The nominal sales number shows a cumulative growth of 168.0% since the beginning of this series. Adjust for population growth and the cumulative number drops to 114.7%. And when we adjust for both population growth and inflation, retail sales are up only 24.8% over the past two-plus decades. With this adjustment, we're now at a level we first reached in September 2004.
Let's continue in the same vein. The charts below give us a rather different view of the U.S. retail economy and the long-term behavior of the consumer. The sales numbers are adjusted for population growth and inflation. For the population data I've used the Bureau of Economic Analysis mid-month series available from the St. Louis FRED with a linear extrapolation for the latest month. Inflation is based on the latest Consumer Price Index. I've used the seasonally adjusted CPI as a best match for the seasonally adjusted retail sales data. The latest retail sales with the dual adjustment declined 0.1% month-over-month, and the adjusted data is only up 0.9% year-over-year.
Consider: Since January 1992, the U.S. population has grown about 25% while the dollar has lost about 42% of its purchasing power to inflation. Retail sales have been recovering since the trough in 2009. But the "real" consumer economy, adjusted for population growth is 3.9% below its all-time high in January 2006.
As I mentioned at the outset, nominal month-over-month retail sales were up 0.04%. Let's now examine Core Retail Sales, a version that excludes auto purchases.
By this analysis, adjusted Core Retail Sales were down 0.1% in July from the previous month, up only 0.4% year-over-year and down 1.9% from its record high in November 2007.
The Great Recession of the Financial Crisis is behind us, a close analysis of the adjusted data suggests that the recovery has been frustratingly slow. The reality is that, in "real" terms — adjusted for population growth and inflation — consumer sales remain below the level we saw at the peak before the last recession.