Retail Sales PLUNGE—Does This Confirm America's Silent Depression?

We can now add retail sales to the growing list under recession scare. Retail sales were down big in January and now revised even lower and then failed to come back at all in February. That has even economists worried that there really is a substantial deterioration and loss of momentum in the U.S. economy. That all the excuses that were used in January were really just excuses. In fact, unadjusted retail sales were lower in That's obviously not good. And remember the excuses for the deep January setback were that it was all about temporary one-off factors like the fires in LA and the deep cold winter. But this disappointment in February shows that there was a lot more to it than just those. What has everyone from economists to the stock market participants on edge is how this weakness in consumers is really starting to look like the loss of momentum and deterioration in the labor market that we keep seeing all over the place. Hours being cut. No one is hiring. Incomes in January that were nowhere near what they had been in previous years. And then you add to this the uncertainty and that's the big word everybody wants to use. The uncertainty of other factors like tariffs. It's not a healthy environment by any means. And that's the term you keep coming across too. Oh it's a little messy in the short run but the background is otherwise healthy. That's exactly what they mean when they For people who think the economy was just fine this all comes at a shock and rather having to look at the data for what it is rather than saying downturn or even recession they say well now it's just uncertain when in fact it's actually getting more certain. It's just not the kind of certain they'd like or have been expecting. I mean that's the reason why consumer confidence has fallen so sharply here in 2025. Consumers as workers are responding to their perceptions of the labor market and incomes fears over jobs. And the fear that everyone else has had is that eventually consumers who are afraid of jobs and incomes might actually start acting on those fears. And that's what the retail sales report first from January and now February is really starting to get at. The fact that consumers who have been holding up even though they're increasingly concerned about jobs and incomes maybe they finally hit that wall. What the Census Bureau reported this morning was first of all a sharp downward revision to the January retail sales figure. Initially they had reported down nine tenths of a percent nominally in the month of January. That's the month of a month change from December seasonally adjusted. Now the Census Bureau thinks it was a 1.2 percent drop which is among the most extreme ones that we've seen so far. For February the latest data that just came out now the Census Bureau thinks it was only up two tenths of a percent off of that 1.2 percent drop. That's way below expectations of a six tenths of a percent rebound and see the difference here. What economists and analysts were expecting was after a nine tenths of a percent drop which was already big they were expecting retail sales to bounce back substantially in February by six tenths of a percent. Instead what we get is retail sales that dropped even more and a lot more by 1.2 percent in January barely even came back from that bigger drop in February. It's a world of difference than what even economists and analysts were expecting. It's a huge difference in sales and spending among consumers and a big part of it first up last year and then down so far this year has been auto sales showing once again that a lot of the artificial highs from last year really were activity related to tariff beating. Trying to buy automobiles before their prices went up based on trade restrictions and trade duties that were going to be imposed by the new Trump administration. So we had a huge rise in auto sales in nominal terms late last year between October, November, and December. According to retail sales it was up almost seven percent and then from January and February so far it's down about four percent with a little bit of stability in in February down only fractionally but still it shows that the rebound in auto sales really wasn't necessarily about interest rates lower interest rates as it was economic distortions related to trade and that there's going to have to be a payback period. All those all those numbers were in nominal terms when you convert it to real terms what you see is retail sales were down fractionally actually down fractionally in February on a seasonally adjusted month over month basis minus 0.02 percent so basically flat but still down after the downward revised 1.7 percent month over month decline in January. So again you had the massive decline in January and then another decline on top of it in February in real terms which means over the last couple months consumer spending and retail sales have really retreated paying a little bit more and getting a lot less for it. So real consumer spending which has been the big problem in fact real terms and anything throughout the global economy especially where it comes to goods volume growth is just not there and it hasn't been there for years and now you see an acceleration of the downside in volume growth which means for the manufacturing sector at the very least there's going to be difficult conversations about do we have too many workers do we need to cut back their hours even further and then it spills over from there into the services sector because a whole lot of services industries are dedicated to the management the movement and the sale of goods so if there's less volume growth there's less need to do all of those things and even when you go back to nominal terms the Census Bureau reported retail sales in February unadjusted for seasonality that were actually down February 2025 compared to February 2024. Lower sales in nominal terms this year this February than last year minus 0.9 percent year over year. Now January's had been somewhat above 4.4 percent you put January and February together combined what you see is the retail sales and nominal terms up 1.8 percent year over year as I keep pointing out anything less than three percent year over year is solidly in recession territory. So we're starting out 2025 with retail sales unadjusted by seasonality up only 1.8 percent that's not good that again that goes along with fears of this recession scare. The only real good thing about it smallest silver lining is that January and February are the smallest months of the year for revenues and spending and activity anyway but even so starting off this week and having it not just be fires and cold weather in January that it continued into February not a good sign and it's a sign in fact that there is real degradation and deterioration in the real economy that consumers are finally acting on they're growing pessimism about their prospects over jobs and incomes they're not just concerned about it now they're acting on those concerns and while we're here talking about the cyclical possibilities here in the U.S. next Monday March 24th URDAL University we're holding a webinar where we're going to discuss the global implications of the cyclical downturn in the U.S. the possibilities there as well as what's what that means for the rest of the world financial markets the dollar interest rates and everything in between there's a link in the description to sign up for the webinar next Monday hope to see you there and these alarms are getting into even the mainstream media among economists and analysts as well as Bloomberg reported about the retail sales report disappointing retail sales last month added to concerns of a pullback in consumer spending in the U.S. while a pair of business surveys suggested growing caution retail sales rose by less than forecast in February and the prior month was revised down to mark the biggest drop since July of 2021 combined with separate data Monday showing a drop-off in New York state manufacturing activity and weaker homebuilder sentiment the reports are consistent with expectations for slower economic growth if we're lucky the risk of much weaker growth as consumers seek to rebuild a savings buffer in response to concerns about job security now looks elevated according to Samuel Toombs who's the chief economist at Pantheon Macroeconomics and again like I said even economists are starting to get more and more concerned even after they were talking about how strong and resilient the economy was not all that long ago dismissing the January drop is nothing more than temporary one-off factors as it turns out with February maybe they weren't temporary after all even before we got to the government's estimates from census on retail sales in February the National Retail Federation had already warned that February retail sales were not coming in strong in fact they were actually retreating according to their numbers what the NRF said was consumer spending dipped slightly again in February due to the combination of harsh winter weather and declining consumer confidence which was driven by of course tariffs I gotta throw that one in but most important of all concerns about rising unemployment then they throw policy uncertainties so they actually get to the the real heart of the matter which is rising unemployment concerns about jobs incomes and hours and everything in the labor market and the NRF numbers according to their models they showed that total retail sales excluding automobiles and gasoline were down 0.22 seasonally adjusted month over month which means that excluding automobiles and gasoline the spending on all the rest of the stuff that looked not as bad in the Census Bureau numbers were incredibly weak according to the National Retail Federation as well and as the NRF points out their data unlike survey data doesn't need to be adjusted because it's drawn from real activity and receipts but even so you can see from the press release from the NRF how they still want to characterize it as okay yeah it was weak in January it's weak in February it's just a little bit of a stumble nothing more than a temporary hiccup we know that's not the case the economy is in bad shape it's just that they haven't been able to see it or been willing to admit it and so now they call it uncertainty they say it's oh this uncertainty has shown up from this otherwise healthy economy consumers have been spending ignoring all the warning signs that have been leading up to this especially among consumers themselves we have continually seen consumers say we're not happy about the way things are in the labor market but yet they continue to spend so economists and analysts and the financial media and central bankers all said well it doesn't matter what the sentiment numbers say or or the actual economic data in the labor market says as long as consumers have been spending then we're going to assume that everything is just fine and now all of a sudden it looks like everything's not just fine we'll call it uncertainty but even someone like Mohammed El-Erian as establishment as the establishment gets has had to recognize that something substantial is going on here in an op-ed that was published just today El-Erian said recent soft data and he put soft in quotes here continues to flash warning signs highlighted by friday's disappointing consumer sentiment survey from the university of michigan confidence income expectations and inflation are all heading the wrong way well consumer prices are not going to be in the wrong way for very long some of these signs are starting to be reflected in the quote hard data pointing to what i strongly expect will be a massive round of revisions to 2025 growth forecasts he already noted that Goldman Sachs has lowered its GDP numbers GDP expectations for 2025 below 2% down to 1.7% and he continues soon analysts and economists will also worry about a negative wealth effect following the sudden plunge in the stock market this includes the fifth fastest correction for the S&P 500 index since world war ii so you've got the stock market that's increasingly concerned about as i keep pointing out the possibility of seeing the traditional recession warning signs negative GDP negative payrolls there's very likely to be negative GDP here in the first quarter but it goes beyond that into the economic fundamentals that are actually worrying stock market participants for the first time in a long time stocks don't care about the economy until it sees a higher probability of traditional recession and this deterioration again consumer spending it makes sense labor market continues to get weak and it has been weak for a very long period of time it's just that weakness goes unappreciated by everyone in the mainstream because they look at consumer spending again consumer spending has seemed to hold up but consumers have been warning themselves they've been saying we're worried about jobs and incomes we're worried about jobs and income and every time in the economists and analysts and central bankers and officials and everyone else says okay you have nothing to worry about we're going to hit the soft we're going to hit a soft landing what happens consumer sentiment swings back to the downside they say we're worried about jobs and incomes at some point it was going to come to a head where consumers worried about jobs and income say that's it we're not just worried about jobs and incomes we're actually going to pull back on our spending as far as the job market goes it is absolutely a mess and it has not been good for a very long time so the underlying fundamentals which supposedly were supporting spending have not actually been supporting spending in fact consumers have been spending in defiance of these fundamentals just because that's what consumers want to do they've been spending and they continue to spend until they can't any longer but the jobs the incomes the hours they're just not there in fact here's another report showing another angle on the weakness in the job market a low hiring low firing job market works reasonably well for older workers who have been in their roles for some time and are protected by the low firing dynamic but the low hiring environment looks and feels like a recession to those just entering the workforce what they urgently need is a meaningful pickup in hiring which hasn't been happening because it's not a strong economy as the article continues something that doesn't appear to be on the immediate horizon either because the economy is in bad shape to begin with and it continues here notably over the past 60 years the u.s economy has been in a recession every other time the unemployment rate for the 20 to 24 cohort has risen by this much over a two-year period this is exactly what i've been saying and trying to point out people don't like you when you use the term recession here fine we'll call it the forget how to grow economy and that's just what this article is zooming in on one of the downside one of the biggest problems of the forgot how to grow economy the lack of hiring which is every bit consistent with recession is really impacting younger workers and younger families and younger people they're the ones that have been screwed by this silent depression economy going back for a very long period of time so even though for most people who've been employed who might be just concerned about jobs and incomes for younger workers and younger college graduates it's not just a concern it's a reality it's a reality that is having grave economic impacts not at some future date it's been like this for the last couple years but more strongly over the last year you can see this in a bunch of other labor statistics as well not only do we have the establishment survey showing slowing down after the artificial high to end last year that's the most that's the most optimistic take on the labor market then you have the household survey that absolutely plunged in the month of february imagine that spending down and staying down when labor market weakness shows up in all these data points even the establishment survey the average work week at 34.1 hours both january and february same as retail sales spending being down 34.1 hours equals march of 2020 as the worst lowest months for the average work week since 2008 as i pointed out in the video on the payroll numbers the average work week during the entire week to 2010s never got below 34.3 so hours are already down there to begin with but you're going beyond that going beyond the the unemployment rate on the household survey site and even the underemployment rate when you look at marginally attached workers these are workers who want a job now but are marginally attached which means they've searched for work in the previous year but not the last month and they would work today if there was any work available what you see is that it really increased at the end of 2023 the number of marginally attached workers then it came down early 2024 and it has been rising since march and april of last year and the level of marginally attached workers is a recession signal in fact when you see the level of marginally attached workers rise that usually means recession has already started which is even what that article suggested and those who are part-time for economic reasons meaning they would work full time but they can't find full full-time employment or they used to work full-time or they've been converted to part-time because their employer just doesn't have the work for them to do part-time for economic reasons you see the number of those start to rise before we get to the traditional economic recessions and the current rise in part-time for economic reasons goes back to silicon valley bank but while the number started to rise back in early 2023 it started to become more of a more of a clear recession signal cyclical signal last summer up until august of 2024 then you see the artificial high the dip back as businesses put a few more workers to work trying to get through the tariff beating activities that they were doing so there's a dip in the number of part-time for economic reasons but only up until december then you see a somewhat of an increase in january but then a sharp rise when in february so you put all of this together it wasn't fires in la nor cold weather in winter january retail sales were weak because there was a lot of artificial activity at the end of last year distortions that were created largely surrounding tariffs and the possibilities of them both in terms of production as well as in consumer demand we get to january now february again it wasn't fires it wasn't cold weather it was fundamental economics consumers have been telling us for a long period since last march and april they are worried about jobs and incomes the income statistics themselves have said they have every reason to worry about jobs and incomes but because consumer spending appeared to hold up it continued to get weak but it wasn't falling off a cliff it didn't look like the traditional recession economists policymakers and everyone in between the financial media kept saying the economy was just fine consumers were strong and resilient in the face of all these headwinds what the retail sales data for january now february shows is that there's a really high chance and a growing chance that consumers are indeed acting on those concerns they're worried about jobs and incomes but now they might be pulling back and pulling back in a way that has even the economists in the stock market worried the cycle really may have turned here well they talk about uncertainty here in the u.s there's not a whole lot of uncertainty over in china especially where it comes to chinese banks you should see what the data looks like and i went over that in the video link below as always thank you very much for joining me join me march 24th next monday for our webinar link in the description huge thank you your university members and until next time take care