Should We Cheer Booming Retail Sales?

People walk along 5th Avenue in Manhattan, one of the nation's premier shopping streets, in New York City, on Feb. 15, 2023. Spencer Platt/Getty Images

Commentary

This one you simply will not believe. The major business press this morning absolutely cheered to the heavens about the surprise explosion in retail spending in January. As I will show, it’s all a big fakeroo.

“The consumer roared back in January,” wrote the Wall Street Journal, “with broadly higher retail spending on vehicles, furniture, clothing and dining out, adding to evidence U.S. economic growth picked up at the start of the year. U.S. retail sales jumped a seasonally adjusted 3 percent in January from December, the largest monthly increase in nearly two years after declines in the final two months of last year, the Commerce Department said Wednesday.”

Like everyone else, I like good news from time to time, so the retail sales report from this morning seems like a thing to cheer. Right? Is it? How can one doubt it with that kind of language? Except that you read a bit more deeply in the report and you find this little note: “Unlike many government reports, retail sales aren’t adjusted for inflation and reflect price differences as well as purchase amounts.”

Oh really! That’s very interesting. Does anyone know how to adjust this for inflation? Is that beyond our math skills today? Is government completely unable to do grade-school math?

It matters because of the following reason.

Let’s say a government printed up a bunch of money and spread it around everywhere, causing the value of each previously existing unit to fall. Then consumers went out and started spending wildly to get rid of the paper that is declining in value. You might see a boom in retail sales but what does it even mean if people are spending more for less? In what world is that good news?

Sadly—and I just hate to be the bearer of bad news—that is precisely what is happening. It is possible to adjust these figures for inflation. What we find is that retail sales growth has been systematically falling for nearly two years now. That’s no surprise given inflation. People are indeed spending more but their dollars are worth less than before. As a matter of fact, retail spending never recovered from lockdowns. It is lower now in real terms than it has been in seven years!

Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker

In what world is this good news? It’s actually a sign of recession if you think that spending by consumers predicts anything at all. It’s only in the phony baloney world of fake government statistics that people should cheer this.

Here we see the cost of mass innumeracy, even on Wall Street. People who are unwilling to check the claims of government bureaucrats do themselves and others a serious misservice. In this case, and so many others, it makes a mockery of the science called economics. It has become like public health: something people claim to do and believe in but only as a disguise for nefarious deeds.

And those deeds were truly awful. We’ve yet to recover normal economic activity since the lockdowns. It really was a great reset.

Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker

There is still more to say about this simply because spending is not, in any case, the pathway to growth. To be sure, some cranks have touted “demand-side economics” since the 1930s as if the path to growth is to spend as much as possible without regard to production. The supply siders of the early 1980s came along to correct this, with a new emphasis on savings and investment as opposed to sheer spending and debt.

We desperately need those voices today. There is and always will be unlimited wants in society. The crucial difference between poverty and prosperity is the willingness and ability to forego current consumption in favor of savings that can be turned into investment.

Sadly, we are doing the opposite right now in both the corporate and household sectors. Savings is being depleted and we are ever more running up debt. Credit card debt is growing and growing even though interest rates are rising. Meanwhile, savings is hitting rock bottom even though it is possible these days actually to make money by saving money. That’s a first in 15 years (thanks to the Fed!) but it is still not enough to keep up with inflation.

We are burning the candle at both ends even as the candle itself is growing skinnier. So even if it were true that retail spending just hit some kind of high, that would not necessarily be great news. It could mean that inflation expectations have finally hit the consumer sector, so people figure they might as well get rid of the paper and pay off the debts in lower-value dollars.

In other words, this really could be the early signs of a crack-up boom, in a phrase bandied about in the 1920s. The upheaval already happening in the job marketplace could be another sign of the same. We face a massive excess of superfluous laborers in the professional sector and a huge shortage in the service and hospitality sectors. That is starting to correct itself now but it has only begun.

And despite the hoopla surrounding yesterday’s consumer price index (CPI) report, that somehow showed that inflation is cooling, officials at the Federal Reserve know the truth. The trouble is that their historical fast rate increases have yet to achieve the goal of tamping down inflation to 2 percent. We aren’t even close. And this is despite the quick shrinkage of the money supply that is taking place now.

The trouble is that a shrinkage does nothing about the trillions in money printing that have actually taken place over nearly three years. That is still working its way through every sector. Thus do you have consumers spending like crazy but obtaining ever less. You know it. I know it. But the writers for mainstream newspapers have apparently yet to figure it out.

Instead we get a daily dose of rah rah headlines from the media even as this once prosperous country continues to dig an ever deeper ditch while the government takes away from us the tools to get out. Something has to change, else we will lose the much of the prosperity we once took for granted.