Retail Sales
Measuring what people buy
The US is a consumer-based economy with almost 70% of Gross Domestic Product (“GDP”) coming from personal consumption expenditures. Doesn’t that seem kind of crazy? Like, the economy is basically just people buying stuff. It feels weird to me because it seems as if it should be driven by something more serious.
When I see financial commentators on television who wear fancy suits talking about the economy, it would imply that there is something more to the economic engine than just going to the store. I think of serious endeavors like manufacturing in a factory (e.g. a car or a computer). But, then I realize that those goods are eventually just purchased by someone. So, there are tangible things happening in the economy but the majority of GDP happens when someone goes to the store and buys things.
Since the economy is weird and based on primarily on people purchasing stuff, measuring the retail sales that are a result of those consumption patterns is important:
It’s important to first note that this chart is seasonally adjusted. If it wasn’t, there would be a huge uptick leading up to Christmas. That’s right, Christmas is a huge driver of the economy. A holiday that includes Santa Claus is critical to GDP. (That is like the opposite of serious.) But this chart smooths those kinds of seasonal effects out.
While this metric has a relatively short history, the past behavior during the financial crisis makes sense. There is a noticeable dip during the recession. And then, for the month of March 2020, we see the massive impact of the coronavirus shutdown on retail sales. This offers yet another indication that the economy is in a recession. People aren’t buying stuff and buying stuff is the economy.
Not to be all doom and gloom but let’s remember that things didn’t really slow down until partway through the month of March. So, April will likely be lower. After that, it’s hard to say what will happen given the uncertainty of the virus trajectory. I guess we will find out soon enough.