October 29, 2019

On October 16, September retail sales figures came in at -0.3% and the market went down slightly before recovering. The media headlines were unnecessarily downbeat over this one-month anomaly:

  • The Bloomberg headline said, “U.S. Retail Sales Unexpectedly Drop in Signal of Shaky
  • The CNBC headline said, “U.S. retail sales unexpectedly decline in a sign that consumer economy could be cracking.” The article was accompanied by a misleading chart titled “Retail sales over the last 5 years” (below), showing a series of monthly changes rather than actual increases:
Retail Sales over the Last Five Years Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

You wouldn’t know from this chart that retail sales are up about 21.5% in the last five years. Unlike most statistics, the retail sales number is a month-over-month change, which is virtually meaningless. It is not accompanied by an “annual rate” or a 12-month change, which would be far more meaningful. This chart (above) merely tabulates the 60 different month-over-month changes over the last five years. They range from a meaningless 2% monthly decline last December to a meaningless 2% monthly gain in 2017. Most recent changes are on the order of +0.5%, which sounds small but works out to a juicy 6% annual rate.

Here is a more informative chart about the annual gains in retail sales over the last 10 years. As you can glean from these numbers, the actual gain in the last five full years (2014 to 2018) is +21.5%, which can be constructed from compounding each year’s gains (1.043 x 1.035 x 1.036 x 1.039 x 1.046 = 1.215).

United States Retail Growth Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

By the way, those 2019 forecasts (above) are way too low. For the first nine months of 2019, sales are up by a cumulative +5.2%, which is a 7% annual rate, the best in five years. The three-month annualized rate has consistently remained above 5% for the last three months, as shown by this Yardeni Research chart:

Real Retail Sales Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

So why all this scary talk about “shaky consumers” and a “consumer economy that could be cracking”?

One more thing. Online sales are rising. As Ed Yardeni said in reviewing the latest retail sales report:

“When Americans are happy, we go shopping. When Americans are depressed by the news, we do even more shopping, because it releases dopamine in our brains. And online shopping gives us an even stronger dopamine fix than going to the mall, reported Psychology Today, citing a Razorfish report, Digital Dopamine. High percentages of shoppers from the US, UK, Brazil, and China in 2014 reported getting more excited to receive online purchases than to buy things in a store.”

As these two charts show, global retail sales are growing about 4.5% per year and the percentage of those sales from e-commerce is growing at double digits, by over 20% per year in recent years.

Global Retail Sales Bar Charts

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

You can buy almost ANYTHING online, at the touch of a mouse click. How enticing, how alluring, how addictive! Christmas is just around the corner, and America is rich. Don’t sell the U.S. consumer short.

The Consumer Has Plenty of Shopping Ammunition (Cash)

Two days after the September retail sales report came out, CNBC interviewed Nobel Prize-winning economist Robert Shiller on Friday, October 18. He said that any recession may be years away due to a combination of bullish effects on the economy due to Trump’s policies (see “Robert Shiller: Recession likely years away due to bullish Trump effect”). Shiller is an expert in a field called “behavioral finance” and he feels that consumer spending is motivated by a “president who models luxurious living.” Really?

Specifically, Shiller predicted the next recession may be three years away and would be mild. He also said that if the economy remains strong in 2020, he expects Trump to be re-elected. Regardless of whether his theories pan out, there are many reasons why consumers should keep consuming strongly:

  1. Wages and salaries rose 4.2% year-over-year to a new high, due in part to deregulation and tax cuts.
  2. Household net worth rose to $115 trillion in mid-2019 and likely rose even higher in the third quarter.
  3. Consumers are saving more: The 12-month total of personal saving rose by $335 billion from the month Trump was elected to reach $1.3 trillion in August 2019; the savings rate rose from 6.5% to 8.1%.
Personal Savings Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Real disposable personal income has been growing faster than real disposable personal consumption for 27 months now. From May 2017 to August 2019, real income rose 7.8% vs. only 6.6% for consumption. In other words, the consumer is now flush with cash, primed, tanned, rested, and ready to shop a lot more.

We likely won’t see a market crash or a recession until we see a blow-out red-hot economy and a market mania first, and we haven’t seen either. It’s not like 90 years ago today, “Black Tuesday” 1929, the first-ever back-to-back double-digit percentage daily losses in history, but in 1929 the Dow had doubled from August 1927 to August 1929. It was due for a crash. If I may summarize, the most important cause of the crash in October 1929 (or October 1987) was that stocks had doubled in the previous two years. Period.

That is not true today. The Dow is just 1.3% above where it was January 26, 2018. This is not a bubble.

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander