Your Gut Feeling Is Right: You Are Worse Off Now Than During the Recession

Your Gut Feeling Is Right: You Are Worse Off Now Than During the Recession

Ok - so you know by now I'm not much for paying attention to economic data, at least when it comes to its impact on stocks. Sure, they correlate over extended periods of time, but that's much too long to be meaningful to investors in the here and now.

So that data's useless for handicapping the stock market, but it's the economy, after all; we're all economic observers and actors, we have businesses or jobs that depend on the broader performance of the economy, even if we don't own a single stock.

And data's always good for clueing us in when Wall Street tries to snow us.

Finally, the data can tell us whether we should be worried about "The Big Picture," as in, "Will our grandchildren be able to do as well as we did here in the United States, or should we tell them to think about seeking their fortunes elsewhere?"

Today, it's retail sales data that tells the tale - and gives the lie to the bright, rosy picture we're being given of 2018's "Trump economy."

Turns out, if you've ever had the feeling economic growth and prosperity is passing you by, you're on to something - something big.

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They're Hiding Grim Realities Below the Top Line

While the top line again showed boffo growth in April, when we peel back the layers, we are once again confronted with my theme of the "Tale of Two Economies."

Those of us at the high end of the spectrum are doing well. Very well. So well, in fact, that it messes with the "grading curve," skewing the totals nicely positive.

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But the majority of American consumers are barely treading water. The base of the economic pyramid is being hollowed out, and that should concern those of us fortunate enough to live near the top.

The fruits of our labors, as it were, are at stake.

So, recently, The Wall Street Journal ran with the headline and lede:

"Climbing Gas Prices Didn't Keep Consumers from Spring Spending: April retail spending still rose 0.3% from March when excluding gasoline and auto activity. Despite rising gas prices, Americans ramped up their spending at the start of spring, signaling modest wage gains and the recent tax overhaul helped buoy spending."

WSJ was, of course, referring to seasonally adjusted data, which is a number made up by government statisticians to make bumpy, messy trends smoother.

They use a statistical method called X-12 ARIMA. It's really little more than a fancy moving average.

It's always subject to huge revisions, month after month, year after year, because it's based on an average of the last five years and the next five years in the future.

Now, obviously, that's not known yet, so the number gets revised to fit the actual numbers for the next two months, and then every year for the next five years, until the seasonally adjusted graph perfectly fits today's data five years from now.

But right now? Not so much. Sometimes it's close to the mark, sometimes not so close.

To be fair, the statisticians report the revisions... but nobody cares; nobody thinks about it too hard. The media, and the Wall Street crowd, only care about that first number, which, just as often as not, is wrong.

As a technical analyst, I'm comfortable with actual, hard data - not "seasonally adjusted," finagled, cooked numbers tied up in a pretty bow.

When only the truth will serve to inform and arm you, what can be better than reality?

Here's What "De-Cooked" Data Says - It's Not Good

OK, we know economists can't handle the truth, but we technicians like it. Plot the data, draw a straight line connecting the lows, or the same time each year, and voila! You can see the trend.

So here's what real, not-seasonally-adjusted reality looks like.

Your Gut Feeling Is Right: You Are Worse Off Now Than During the Recession

Now, that's one helluva trend...

Year to year, nominal retail sales rose 3.8%.

But wait! That's the second-slowest annual growth rate in the past 12 months. Month-to-month was down 5.2%.

Now, April always declines versus March, so a month-to-month change of -5.2% isn't surprising in that regard. But that's worse than any March-to-April dip in the past 10 years.

Wait a minute! Weren't the tax cuts supposed to stimulate spending? Apparently, that's not working. Retail sales growth is actually slightly below trend.

But let's give the above graph its due: If this month is below trend, it's not visible in the big picture. And as you can see on the lower graph, the 12-month moving average of the growth rate continues to inch higher.

Now, let's dig a little deeper...

Retail Performance Is Running on Fumes

This trend includes an inflation component. So let's back out inflation using the measure that I like better than the Consumer Price Index (CPI) for this purpose. It's the Producer Price Index (PPI) for core finished consumer goods.

The resulting chart of real retail sales, representing the unit volume of sales versus the dollar value, suddenly doesn't look so hot - at all.

By the same token, it doesn't look much different from recent years. Nothing has changed, the tax cut notwithstanding.

Your Gut Feeling Is Right: You Are Worse Off Now Than During the Recession

Real retail sales rose just 1.8% year over year and were down 5.4% month to month.

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That performance was close to trend, with the average growth rate gradually accelerating from near zero at the end of 2015 to nearly 2.5% now. It's not spectacular, but it's solid.

There's absolutely nothing here that would deter the U.S. Federal Reserve from continuing to tighten, which is to say, continuing to drain the lifeblood out of the stock market.

It's when we peel the onion a little more that the internal rot begins to show up.

We know, for example, that the U.S. population has grown over the past decade. So part of the rise in total sales is simply due to population growth.

How does the graph look if we normalize not just for inflation, but for population? It gets flatter and flatter.

Apparently, most people are not spending more. In fact, real retail sales per capita isn't even back to where it was during the 2008 recession!

Your Gut Feeling Is Right: You Are Worse Off Now Than During the Recession

Finally, gasoline accounts for about 10% of retail sales. Gas prices have been rising sharply over the past year. That is contributing to the overall rise in retail sales.

So let's "x" that out and see how the sales of everything else are doing after inflation, and on a per capita basis.

Your Gut Feeling Is Right: You Are Worse Off Now Than During the Recession

That's just ugly. The year-to-year rate of change of retail sales ex-gas per capita fell 0.4%.

The March-to-April decline of 6.2% was bigger than any March-to-April drop in the past 10 years. April had the worst year-to-year momentum showing since an anomaly in February 2016.

The thing is, this month's drop isn't an anomaly; the growth rate has been declining for five months.

Not only that, but current spending is below the April 2016 level, as well. And current spending is no better than the levels reached in 2004, 2005, and 2006.

This paints a pretty grim picture - not one you're likely to get on the evening news, and certainly not one that any elected representative, on either side of the aisle, would ever cop to in a million years.

But it's the truth - unvarnished, pure, and simple. And now that you know it, you can do something about it.

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Your Financial Future Is at Stake (Are You Prepared?)

If you're like most Americans, you've felt a sense of market turmoil ahead. We could be in for another white-knuckle ride... a "Great Reckoning," if you will.

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