By the Numbers
Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.
The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.
What goes down must go up? Gravity doesn't work both ways, but the economic data sometimes do. When weather restrains retail sales for a few months, consumers deplete their stocks of household goods, and so they then must over-shop, for a while, in order to replenish those stocks.
So, if bad weather pushed sales below-trend in early 2014, sales must temporarily move above-trend in the spring, before finally returning to trend in early summer. This is the pattern we have observed after East Coast blizzards in the past, and we'll likely see it again this year.
During such up and down swings, it is hard to determine exactly what the underlying trend is. One needs to be patient and perspicacious. One also needs to disparage any apparently strong sales gains we might get in March or April, just as the weather-restrained sales in January and February were disparaged.
As seen in the chart, even with supposedly "healthy" February sales gains announced this morning, February sales levels were still well below the tepid 3% (nominal) annual growth pace observed since late 2012. So, households further depleted stocks last month. Merely to get back to a 3% trend path, sales would have to rise 1.1% in March, and they really should rise much more than that—by 2.0% or so—in order for restocking to occur.
So, that is the hurdle the "fast growth" side must overcome. What might look like rapid sales gains in the next few months will really be merely a catch-up from weather-depressed sales in January and February. The market consensus ignored January sales declines as weather-driven. Whether the market will be suitably weather-perspicacious when effects are reversed remains to be seen. For now, there is nothing in the data at hand to support a faster-growth view.
Michael BazdarichProduct Specialist/Economist
Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.
Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.
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