Tuesday, September 15, 2009

Retail Sales Suggest Recovery Prospects On Track

The real importance of today's retail sales for August lies not as much in the sheer magnitude of the 2.7% surge for the month, as this is a notoriously volatile series and, after all, more than half of that increase was due to the now expired "cash-for-clunkers" program.

It is primarily the breadth of healthy gains in many key categories (apparel, general merchandise store, electronics &appliances sales) that provides the report with legitimacy. Excluding autos, the 1.1% gain for the month was still quite respectable, as was the version of the data that attracts the most attention by economists (which excludes autos, building materials and gasoline) that also showed a solid increase.

Despite the special factors that boosted retail sales for the month and their inevitable unwinding that sets the stage for a decline in the series for September, it is clear that consumer spending is perking up on an underlying trend basis. In the last three months, non-auto retail sales have risen by 0.8% compared to the prior three-month period; a fairly respectable gain.

If an upturn in consumer spending is confirmed by the data over the coming months, this can become a potent drive for a pick up in hiring toward the end of the year and into the first part of 2009. The prevailing view so far seems to be that, as long as job losses continue, the economic recovery cannot gain traction. This , however, seriously underestimates the reverse dynamic. Job growth may not necessarily be the starting point of a sustained pick up in spending and economic recovery- but an upturn in consumer spending (fueled by pent-up demand) may actually be the key to job growth.


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