As we have correctly forecast each month since our November 18, 2010 report entitled Retail Sales as of a Pre-Crisis Habit, the rate of retail sales growth (seasonally adjusted, three month moving average) has been heading progressively more downward after peaking in October.
The mum rise was, again, less than expected at 0.3%, after a downwardly revised 0.5% in December. And once again inflation sensitive Gasoline prices were driving most of the gain, with sales up 1.4% from December – this month joined by grocery sales, also up 1.4%.
Retail sales have been advancing and contracting in micro-cycles that track consumer behaviour in repaying and then re-borrowing consumer debt.
Today’s retail sales data proves out the inflection point in retail sales growth that we reported on last month our following an (relative to recent times) explosion in Q4 2010, seasonally adjusted, consumer borrowing (which actually expanded in December on a three month trailing average). See our revised chart below.
The chart has also been revised to show the December consumer credit growth.
Several observers of retail sales data have proven more adept at rearview meteorology than macro- or micro-economics. Yes, it snowed a lot in January – and we will grant that the building materials number (down 2.9% mum) was likely affected by the white stuff.
But what is really going on is precisely what we have hypothesized since we began researching this issue early last year: Retail sales are moving in micro-cyclical patterns reflecting the limited amount of consumer credit availability that exists. Consumers are repeatedly paying down and repaying their credit – against a relatively fixed amount of availability in a very sluggish economy.
We now expect to see the rate of consumer deleveraging pick up again in January and February. Repeating our thesis:
“Expansion and contraction of retail sales in the post-panic U.S. economy has been predominantly the result of fluctuations in the use and repayment of consumer credit facilities, not the normal recovery patterns expected following a garden-variety recession These activities principally represent the overall recent patterns of consumer saving, punctuated by periodic dis-saving as credit facilities free up, are employed again, and then must be paid down anew.”
Again – we point out that the only way out of the foregoing micro-cyclical pattern is through net growth in aggregate incomes, which can only be realised through increased wage rates and/or an increase in the number of people employed.