Retail Sales Tick Up

Meanwhile, back at the economy …

Today’s news that retail sales rose by 0.4% in August is obviously good news and worthy of note. That rate of growth is decent – not great, but OK – and follows a similar kind of growth in July. The key point to take away is that with this kind of growth in retail sales, we can expect overall consumption to continue to expand. That’s important because consumption is the heart of the economy.

Even better: buried within the total sales were pockets of strength. Take away the more volatile sales of things like autos and gasoline, and sales were a bit stronger at 0.6%. Not a huge improvement, but better than where we have been. Consumers are sticking with their bargain hunting and parsimonious ways. I think we should be grateful for the reappearance of any willingness to spend, however weak the impulse may be.

To put this in context: overall personal consumption grew at a 2.0% rate in the second quarter and was crucial in supporting GDP. July and August’s retail sales suggest that consumption is still growing in that same range and we can thus infer that the overall economy is not about to fall into recession. Instead we are well and truly stuck in this endless no man’s land of modest growth that sometimes feels like no growth at all.

The problem remains the same.

Modest growth simply is not enough to break the back of unemployment. We need to accelerate if we are to create jobs in sufficient numbers to reduce unemployment quickly. Unfortunately I see nothing in the economy that hints at such an acceleration. The only policy option remains more stimulus and that is apparently beholden to political infighting. Such is life in a divided nation. So far I have been correct in my diagnosis, so I see no reason to change. Without the political will to deploy the full force of government to resolve the lack of aggregate demand that haunts us, we are condemned to muddle along in the hope that providence, luck, or some other force comes to our aid. I am not a believer in the supernatural, so I see no such event on the horizon. Hence my continued belief that we will chug along in a low gear. Neither in recession, nor in solid growth.

Call it a “phony recovery”.

It’s shambolic, but at least it’s better than a complete collapse.