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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.

Retail Sales: Still Lazy After All These Years

In previous installments of "By the Numbers," we've pointed out that retail sales would have to grow spectacularly over March through May merely to offset the weather-induced weakness in sales seen in January and February. Shoppers who couldn't get to the stores because of the polar vortex had to deplete their cupboard stocks of food and other staples and so needed to do double-shopping after the thaw in order both to fulfill ongoing needs and replenish stocks.

Well, over the past few months, we have not witnessed enough of a rebound in sales to come even close to fully offsetting the winter weakness. The chart here tells the story. Looking at core (or control) sales, you can see the below-trend levels in January and February, and while sales rose nicely in March, those gains were barely enough to bring sales back to the red trend line depicted here. Above-trend sales are necessary to offset winter weakness, and we sampled only a taste of that in March and April before sales fell back slightly below trend in May.

The Federal Reserve (Fed) and others are counting on stronger consumer demand to help drive their forecast of 3% or stronger underlying GDP growth this year and after. To date, there is absolutely no sign of consumers complying with such forecasts. If anything, the data indicate a weakening in underlying sales trends, since, again, recent sales levels have not been sufficient to fully make up for earlier weakness.

Meanwhile, consumer spending on services had been buoyed in the data by government estimates of a massive ac-celeration in health care expenditures due to the onset of the Affordable Care Act (that acceleration single-handedly boosted 1Q14 GDP growth estimates by +0.8%). Service sector data released yesterday appear to have quashed those estimates of stronger health care spending. Consumer spending on both goods and services to date look nondescript at best, contrary to the Fed's forecasts.

Retail Sales Trends
June Retail Sales Trends Chart
Source: Census Bureau. As of 31 May 14. Core retail sales is total sales less vehicle dealers, service stations and building material stores.

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 45 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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