Second Half Recovery Dented by “Resurgent Consumer”

We normally don’t comment in real time on individual economic data releases. Generally we believe it makes more sense to occasionally look at a bigger picture overview, once at least some of the inevitable revisions have been made. The update we posted last week (“US Economy, Something is Not Right”) is an example.


storming the storeEager consumers storming a store

Photo credit: Daniel Acker / Bloomberg


We’ll make an exception today though. Our friend Michael Pollaro just sent us a chart update following today’s release of retail sales data. Apparently the data missed the consensus forecasts of economists by several light years.  Michael prefaced the chart with “the  consumer resurgence!

As our regular readers know, contrary to the mainstream view, we do not regard consumption to be a driver of economic growth. Rising consumption is a result of economic growth, not a cause of it. The causes of economic growth are saving and (wise) investment.

The term investment has to be qualified by putting the word “wise” in front of it, because in an economy in which artificially induced credit booms are the norm, a lot of investment will regularly turn out to have been unwise. A recent example was provided by the oil industry, which was misled into making extremely bad investments due to price distortions largely caused by monetary pumping.

Consumption growth is however influencing aggregate economic data reported by the government, such as GDP. In that sense, it can be said to affect “growth”. It should be added to this that in our centrally planned fiat money system, a lot of consumption is actually a symptom of capital consumption rather than a reflection of genuine growth.

On to Michael’s chart and the reason why we decided to comment on this data release. It seems that this year the traditional “second half recovery” is already running into snags early on. The chart shows retail and food service sales growth and contrasts it with employment growth according to the establishment survey (a.k.a. non-farm payrolls). Restaurant sales growth (food and drinking places) is shown separately:


1-Retail salesAnnualized growth in retail sales (green, lhs), sales of food and drinking places (blue, lhs) vs. y/y employment growth (red, rhs) – click to enlarge.


As the chart illustrates, similar to what we have seen with many other economic data, retail sales growth and employment growth have begun to drift apart rather noticeably. Historically they have been tightly correlated; wide gaps between them are a fairly rare occurrence.

In toehr words, either the current gap is going to be closed one way or the other, or something is wrong with the data. We mention this because Michael also informs us that a number of pundits have immediately chosen to argue that weakness in retail sales growth should be ignored because payrolls growth is so strong. There is a big problem with this argument though (actually, there is more than just one problem with it, but we want to focus on a specific one).

As Anthony B. Sanders informs us at the Wall Street Examiner, the July jobs report was largely the figment of a huge seasonal adjustment. What makes this adjustment particularly noteworthy is that it was quite different from the adjustments seen in previous years, as illustrated by the following chart:


2-seasonal-adjustment_ughSeasonal adjustment to July jobs data since 2006. This year’s upward adjustment to the payrolls data for the month of July was quite unusual.


This probably explains why rate hike odds as reflected by the Fed Funds futures market didn’t change much on the “blow-out” jobs report.



It could well be that we are approaching the point in the economic cycle described by Roger Garrison as follows:


“Early in a credit expansion income earners consume more than they otherwise would have, while later, they are forced to consume less than they could have.”


If that is indeed the case, we should expect consensus forecasts to fall prey to a great many more “surprises” (readers may also want to take a look at our in-depth discussion of forced saving in this context).


eager consimitesThis is probably not happening at the moment…

Photo source: ITN


Addendum: Consumer Confidence

Shortly after today’s release of the retail sales data, the Michigan University’sconsumer confidence report was published. According to an article at Marketwatch, although the confidence gauge rose slightly overall, the report contained the following tidbit, which confirms the retail sales figures:
The current-conditions component of the index slipped 2.7% to 106.1. That was driven by “younger households who cited higher expenses than anticipated as well as somewhat smaller expected income gains,” Michigan’s survey director wrote in a release.
(emphasis added)


Charts by: Michael Pollaro, South Bay Research




Emigrate While You Can... Learn More




Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • India’s Experiments with COVID-19
      Shooting from the Hip [ed. note: the tweets linked below mainly show videos from various lockdown phases]   Reminiscent of his demonetization effort in 2016, on 24th March 2020, Indian Prime Minister Narendra Modi, appeared on TV and declared an immediate nationwide curfew. No one was to be allowed to leave wherever he or she happened to be. All flights, trains (after 167 years of continual operation) and road transportation came to a complete, shrieking...

Support Acting Man

Austrian Theory and Investment


The Review Insider


Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


Mish Talk

    Buy Silver Now!
    Buy Gold Now!