The Retail Sales “Good News” Which Wasn’t

If you don’t think Washington has made an unholy mess of the US economy, take a gander at the graph below. Consistent with the happy retail sales news embraced spiritedly on Thursday by Wall Street, the purple line shows retail sales up by +35% since the pre-pandemic peak in February 2020, and by a full +1.0% over last month.

By contrast, the black line presents the same data, except that it is deflated by the 16% trimmed mean CPI. Alas, there is absolutely nothing bublicious about it.

To be sure, real retail sales initially surged by 12% as of April 2021 when Washington flooded households with stimmy checks and other free stuff. But that was an economic “sugar high” if there ever was one.

In fact, inflation-adjusted sales have been marching down hill ever since. By July 2024 retail spending clocked in at -3.5% versus a year ago and -7.1% compared to where they stood in February 2020.

So July’s ballyhooed monthly gain of +1% was flat out “recency noise” reflecting perturbations in the seasonal adjustments and a complete disconnect from the punk inflation-battered retail sales trend of the last four years.

Nominal And Inflation-Adjusted Retail Sales, February 2020 to July 2024

In fact, the real disconnect lies in what amounts to the economic dog which apparently barked only once. To wit, owing to the massive stimmy bacchanalia during the pandemic period, government transfer payments (black line) soared from the normal $3.1 trillion level to a peak of $6 trillion at annualized rates in Q1 2021.

That flood of cash into household bank accounts did temporarily spark a retail spending spree, mostly through Amazon and other e-Commerce channels. But it didn’t last. The black line in the first graph above depicts the proverbial deflation of the balloon as well as any, thereby reminding that government stimulus does not generate new economic output and wealth; it just pulls spending forward in time.

Still, transfer payments at the $4.2 trillion rate shown in the chart for Q1 2024 were 32% above the pre-pandemic levels of Q4 2019 or more than $1.0 trillion higher, yet real retail sales continue to fall.