Retail Sales Spoil the Fun

Well it didn’t take long for the optimism of recent days to get firmly dampened down. Today’s retail sales data is a very strong indication that the economy is still very far from healing itself. Here’s the release and the story from MarketWatch.com:
U.S. retail sales slump 1.1% in March – MarketWatch

The first two months of the year saw small increases and had led some observers to believe that a discernible uptick in consumption was taking hold. The March decline of 1.1% completely undermines that notion. And with unemployment likely to rise throughout the remainder of the year I doubt whether consumption will pick up much steam all year.

That does not mean that GDP itself will not grow sometime later in the year. This is partly due to what I expect to be a switch in inventories.

Companies have been slashing output for months in anticipation of declining demand. There will come a time when inventories are too low even if demand itself doesn’t pick up. At that point, which will probably occur during the third or fourth quarters this year, businesses will forced to raise output. Inventories will rise and that will be sufficient to make GDP go up too.

That will not be cause for rejoicing. An inventory accumulation led GDP increase hardly presages a full recovery.

But it will mark the end, technically, of the recession.

These March retail sales figures suggest there’s a lot more work to be done before we have anything more than a ‘technical’ recovery.

It still looks like 2010 is the year for things to get better.