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One of the most important and reliable Leading Economic Indicators in relation to the Business Cycle is Retail Sales.  Retail Sales are a major part of Consumption- a function of the business cycle and a basis for the Inflation Index as well.

Simplified, aggregate demand, a composite function of personal consumption is the largest component of  the economy, representing approximately 65% or two-thirds of GDP. Two of biggest components of GDP are- Consumer Spending and Trade.

The latest Retail Sales report is out tomorrow and the hope is for some good news. Unfortunately, sales figure reports to this point have all been bad. Shrinking household wealth as a consequence of-  debt, on-going and rising job loss, have curtailed spending to depressed levels.

retail-sales-10y

The first quarter figures will likely show an approximate 2.5% year-over year drop in activity- with predicted March numbers barely in the black at 0.2%. Given that factory output shrunk, unemployment still climbing, loan delinquencies widening and drop off in auto sales- the minute increase could actually be deceiving.

One of the drivers of the predicted o.2% uptick could still be the use of gift cards that were purchased in December 2008. As consumers held on and rationed their spending during the first three months of 2009.

Crude- but effective

A couple crude measures of consumption, though maybe somewhat old-fashioned…is to keep tabs on the local Freight Train and delivery truck activity. Huh? Well, how do you think all those goods get to shelves?

As part of our local surveys, RE has noticed a decisive drop-off in freight train frequency and the length of freight cars. Additionally, the on-road saturation of trailer trucks in the central and northern NJ regions is noticeably less as well.

According to data from the NRF, forecasts for the second quarter call for further decline as well. Normally, a quarter’s worth of consistent data would be good enough to make the call for a trend-in-the-making. Although given the many conflicting data- corrections are sure to be made come Q2.

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