Retail Sales Decline: Harbinger of Recession?
The total nominal increase in July 2006 Retail Sales of $368.405 billion was 3.9% from July 2005's $354.414 billion. However, adjusting for inflation
using the Bureau of Labor Statistics Consumer Price Index increase of 4.3%, this reduces the "real" Retail Sales change to -0.4%. However, the
figures are even worse if gasoline station sales are subtracted. Subtracting July 2006's $43.918 billion in gasoline sales from the total nominal
Retail Sales gives $327 billion. Subtracting July 2005's gasoline station sales from the total nominal Retail Sales (from July 2005) gives $319.53
billion. The difference between the July 2006's retail sales (ex. gasoline station) and July 2005's retail sales is only 2.3% in nominal
(non-inflation-adjusted) dollars. Adjusting for inflation using the CPI increase of 4.3% puts the total at a -2.0%. In other words, excluding gasoline
station sales, inflation-adjusted Retail Sales declined
2.0% from July of 2005.
This can be seen from the Retail Sales chart below copied from the U.S. Bureau of Economic Analysis report on
General Merchandise Sales, which make up the biggest component of Retail Sales, showed a nominal increase in dollar sales of 4.3%. (underlined in blue
on the chart above.) Again, this is exactly the same as the increase in the Consumer Price Index of 4.3%. Thus, the real change in General Merchandise
Sales since July of 2005 is 0.0%. In other words, there has been NO growth in General Merchandise Sales since July of 2005.
The declining inflation-adjusted Retail Sales numbers are an ominous sign for the economy. They're even more concerning when gasoline station sales
figures are not included, which leaves the remaining total for Retail Sales at 2% less
than the previous July. Even with increased borrowing,
consumers spending is declining. Since consumer spending is 70% of GDP growth, it makes further GDP growth difficult, if not impossible. With consumer
borrowing ability expected to fall even further, consumer spending will likely decline further as well. Real wages have continued their steady decline
since December 2002. Median real family income has declined every year since 1999. With decreasing consumer spending and decreasing consumer demand,
labor demand can be expected to decline even further. The declining labor demand will result in further declines in both wages and employment,
reducing consumer spending power even further.
Several noteworthy economists are suggesting a recession is on the way. Paul Krugman has discussed this in his most recent article titled
Intimations of Recession
. Economist Nouriel Roubini, former member of Clinton's
Council of Economic Advisors, has put the likelihood of Recession
at 70% by the end of 2006.
Another article from the Daily Reckoning
has also laid out a strong case for an
impending recession. All of these sources have provided a considerable amount of evidence to support their predictions. It appears that our
"faith-based" economy is running out of steam. It can no longer be kept afloat by the hot air from the Housing Bubble and the alternate reality
creation of the NeoCon-Artist spin machine.
Economic Patriot Forum
The economy needs balance between the "means of production" & "means of consumption."