Is the economy doing well, or not?
If you skimmed the headlines last week, you may have seen that retail sales – the purchases we make from stores in-person or online – declined 1.9 percent in December. The statistic may have raised questions about the strength of the economy. After all, how could retail sales move lower during the holiday season?
Media headlines speculated that the spread of the Omicron variant, rising inflation, and consumer grumpiness were to blame. Economists had other ideas, according to Logan Moore and Megan Cassella of Barron’s. “Consumers had long been expected to pull forward their holiday shopping to get ahead of any supply chain backlogs, economists say.”
As you think back on when you did your holiday shopping, there is another important question to ask: What time frame does the 1.9 percent capture?
The retail sales report showed that sales were:
Down 1.9 percent month-to-month (comparing November 2021 to December 2021)
Up 16.9 percent year-to-year (comparing the month December 2020 to the month of December 2021)
Up 19.3 percent for the year (comparing 2020 retail sales to 2021 retail sales)
So, back to the original question: is the economy doing well, or not?
If you are judging based on retail sales – or any other piece of economic data – your conclusion is likely to depend on the time frame the data reflect.
For instance, if retail sales are down 1.9 percent from November to December, it tells a different story than if retail sales are up 19.3 percent for the year. The story may also be affected by the fact that 2021’s retail sales gain built on 2020’s gain. Retail sales rose 3.1 percent from 2019 to 2020, despite the pandemic.
Of course, the story of the dip in month-to-month numbers could be that we are at an inflection point. Barron’s reported, “While the December report showed an unexpected drop in retail sales from the catapult in spending November data showed, the slowdown is expected to be short-lived. Put more simply: ‘Don’t panic’…”
Last week, major U.S. stock indices moved lower, reported Ben Levisohn of Barron’s.