Total Retail Sales --As Reported ($bln) --Per Capita

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Marjory Martin
5 years ago
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1 11/22/2016 Despite the stronger than expected +0.8% m/m Retail Sales print last week, when stepping back to view the big picture, it is clear that retail sales have an enormous way to go to match pre-recession trend levels. On a Per Capita basis, sales have even more ground to cover. While sales are trending higher, they are approx % below where they should be in order to match prerecession trend. $500 Total Retail Sales --As Reported ($bln) --Per Capita $1,600 $ $1,434.8 $1,500 $1,400 $400 $1,300 $350 $1,200 $1,100 $300 $1,000 source=census Bureau $ $900 Meridian Macro Research LLC Tel: info@meridianmacro.com 1

2 The bright spots for retail sales have been Internet, Autos, and Health/Personal Care stores. Combined, these 3 account for 37% of total retail sales (weighting as of last report) and, excluding these 3 (green line below), sales are well below trend and look as if beginning to flat-line. $520 Retail Sales ($bln) --Total --Ex-Internet & Autos --Ex-Internet, Autos, Health/Personal Care Stores $482 $ $406 $368 $330 Change from pre-recession high: +23.1% +13.4% +11.4% $292 $254 $216 R $178 source=census Bureau $

3 If the above weren t troubling enough, on a Per Capita Inflation-Adjusted basis, total retail sales are not even back to pre-recession levels. Excluding Internet + Autos, sales are down -6.4% from pre-recession high and are unchanged since Feb $900 *Per Capita Real Retail Sales --Total vs. --Ex-Internet --Ex-Internet & Autos $ % $800 $ % $700 $650 $823.4 $738.1 $567.0 $ % $550 $500 source=census Bureau, BEA *Retail Sales Inflation (CPI) Adjusted (baseline = 1992) $

4 At present, Real Retail Sales (per capita, inflation adjusted) are approximately 25% below the pre-recession trend; excluding internet sales, Real sales are approximately 33% below trend. $1,030 *Per Capita Real Retail Sales Total vs. Ex-Internet $980 $930 $823.4 $738.1 $ % 32.8% $830 $780 $730 $680 source=census Bureau, BEA *Retail Sales Inflation (CPI) Adjusted (baseline = 1992) $

5 Retail Sales as % GDP has been in a downtrend for some time. At 29.2% it is below 10yr average, on level with the recession, and trending lower 32.0 Retail Sales as % GDP 31.5 Change: 29.23% yr Avg yr Avg source=census Bureau, BEA (12mo sum retail sales / nominal GDP)

6 Ex-Autos, we find sales as % GDP are lowest since depths of the recession. Excluding Internet and Autos, sales are at lowest on record as % GDP. (note: internet sales, while very strong, can be considered a sign of a weak consumer landscape as people search for the cheapest deals they can find which typically are found online rather than at brick/mortar stores) Retail Sales as % GDP --Ex-Autos --Ex-Internet + Autos % 20.3% 20.4 source=census Bureau, BEA 20.0 (12mo sum retail sales / nominal GDP)

So, why are retail sales losing ground as % GDP? Yep, you guessed it, we turn back to the most glaring consumer headwinds (outside of stagnant wages): Health Care + Housing/Utilities.

7 So, why are retail sales losing ground as % GDP? Yep, you guessed it, we turn back to the most glaring consumer headwinds (outside of stagnant wages): Health Care + Housing/Utilities. As the chart shows, retail sales continue to drop as % GDP as cost of living outlays surge Health Care + Housing/Utilities as % GDP vs. Retail Sales as % GDP % 29.23% source=bea, Census Bureau (12mo sum retail sales divided by Nominal GDP)

8 The above-mentioned trend has been taking shape for some time, yet since emergence of the Affordable Care Act it has only accelerated. Given the pace at which Health Care + Housing/Utility costs are rising it shouldn t be more than a few years before these two mandatory outlays overtake Retail Sales on a nominal dollar (and % GDP) basis. (note: recession noise data removed to smooth the chart) Retail Sales vs. --Health Care+Housing/Utilities as % GDP RECESSION 'NOISE' PERIOD source=census Bureau, BEA (12mo sum retail sales / nominal GDP)

9 One of the big bright spots for Retail Sales the past few years is perhaps on the verge of a sharp deceleration. Per Capita (million persons) auto sales have turned negative for first time since The trend is unmistakable. 18 US Auto Sales Per Million Persons 12-month sum, y/y % 1Mo Chg: source=bloomberg, BEA, WARD's Automotive Group *calculation based on actual monthly unit sales level

We are already seeing the effect of weak retail sales (among most components/sectors of Retail Sales report) in the form of employee hours which have been steadily reduced and are presently below

10 We are already seeing the effect of weak retail sales (among most components/sectors of Retail Sales report) in the form of employee hours which have been steadily reduced and are presently below recession low on 12mo average basis. And this, while Retail Employment is at all-time highs indicative of high number of part-time jobs. Given health costs are set to soar double-digits next year only adding to consumer stress levels (and any fix to the ACA likely far off), we would expect retail sales to remain under pressure and jobs to follow Averge Weekly Hours: Retail Employees (12mo avg) vs. Retail Trade Employment (12mo change, 000s) source=bls ,000 10

Core Consumption Expenditures have now been below Fed s 2% target for 53 months in a row 3.1 Core CPI y/y vs. Core PCE y/y 2.9 2.7 2.

11 Core Consumption Expenditures have now been below Fed s 2% target for 53 months in a row 3.1 Core CPI y/y vs. Core PCE y/y % 1.70% 2% source=bea, BLS

Central Bank and China+Japan holdings of US Treasuries are being reduced at a record (12mo change) pace $1,000 $900 $800 $700 $600 $500 48.8 Change: -45.9-245.8 Change: -16.6-141.7 Change: -3.

12 Central Bank and China+Japan holdings of US Treasuries are being reduced at a record (12mo change) pace $1,000 $900 $800 $700 $600 $ Change: Change: Change: -3.3 Foreign Holdings Of US Treasuries: --Total --Central Banks --China + Japan 12-month $billion change $400 $300 $200 $100 $0 -$100 -$200 source=us Treasury -$

Long-Term Central Bank Treasury Purchases (sales): record sales figure of -$375bln $300 Long-Term Foreign Official US Treasury Purchases 12-month sum -

13 Long-Term Central Bank Treasury Purchases (sales): record sales figure of -$375bln $300 Long-Term Foreign Official US Treasury Purchases 12-month sum - $billion $200 $100 $0 -$100 -$200 Change: $300 source=us Treasury -$

1800 1600 1400 1200 S&P relative to Velocity of Money another record high. Widest gap on record between stocks and economic activity. S&P 500 vs. S&P 500 relative to Velocity of M2 Money Supply 1,554.

14 S&P relative to Velocity of Money another record high. Widest gap on record between stocks and economic activity. S&P 500 vs. S&P 500 relative to Velocity of M2 Money Supply 1, , data=bea, Federal Reserve (all data monthly + latest data point) *Velocity of Money: Nominal GDP/M2 Money Supply /22/ Meridian Macro Research LLC. All Rights Reserved. The information and data contained herein is assumed to be accurate, but is not guaranteed. Specific Meridian reference to Macro any specific Research security should LLC never be Tel: construed as a solicitation to either info@meridianmacro.com buy or sell. The charts and commentary released under its banner may not be reproduced, forwarded or referenced without the express consent of Meridian Macro Research LLC. 14

Where Are They Now? Meridian Macro Research LLC 8/9/2016

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