We are updating the chart we released in last month’s report entitled Retail Sales as the Echoes of a Pre-Crisis Habit, to reflect data through November, with respect to retail sales, and through October with respect to consumer credit. See the revised chart at the end of this email and attached.
Our seasonally adjusted, three month moving average growth rates for sales and credit continue to exhibit the pattern discussed in the report. Note particularly that retail sales growth plateaued in October/November and the rate of consumer deleveraging has slowed dramatically through October. In fact, we saw two straight months of actual growth in consumer credit (September/October), a phenomenon not seen since July 2008, when consumer credit was still relatively available.
If we are correct in our interpretation of the data presented below, we should see a pullback in retail sales and consumer credit outstanding in Q1 as consumers, once again, bump up against credit line limits in the relative absence of new credit facility extension, amidst little change in aggregate disposable incomes. As we noted last month:
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.
The only way out of the foregoing micro-cyclical pattern is, obviously, through net growth in aggregate incomes, which can only be realised by through increased wage rates or an increase in employment. Recent evidence of new consumer credit creation (including, disturbingly, sub-prime) may underlay the mum credit growth we are seeing, but that should prove limited without an improvement in incomes.
Here is the revised graph:
Photo: Westwood Capital
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