Contact us
CALL US NOW 1-888-GOLD-160

Does the Jump in Retail Sales Mean the Economy Is OK?

  by    0   0

Retail sales rose 1% in June after a 0.1% decline in May. Mainstream media breathlessly reported that the jump in retail spending “eases” recession fears.

Does it though?

The short answer is not necessarily.

As CNBC reported, “rising costs for food and gasoline, in particular, helped propel the increase.”

Excluding autos, the monthly rise was still 1%, topping the 0.7% estimate. A big drop in auto sales in May was a big factor in driving May’s retail sales decline.

Breaking down the data, sales at bars and restaurants increased 1% – reflecting rising food prices. Online sales rose 2.2%, and furniture and home store sales were up 1.4%. But sales of general merchandise dropped 0.2% driven by a 2.6% plunge in department store sales.

The mainstream narrative is that Americans are spending more “despite” rising prices. In fact, Americans are spending more because of rising prices.

In reality, Americans aren’t buying more stuff. They’re simply paying more for the things they’re buying. The June CPI came in at 9.2% annual, and retail sales are not inflation-adjusted. On a month-to-month basis, CPI rose a blistering 1.3%. That means the entirety of the rise in retail sales can be accounted for by rising prices — and then some.

When you look deeper at the data, it’s pretty clear Americans aren’t spending more because they’re confident about the economy. They’re spending more because they have to. This is an involuntary spending spree. American consumers are spending hand-over-fist in an effort to keep up with surging prices.

Since retail sales are expressed in dollar amounts, they reflect both units sold and rising prices. That means there are two ways retail sales can go up.

  1. Consumers buy a larger quantity of stuff.
  2. The price of the stuff they’re buying goes up.

In other words, just because dollar widget sales increase doesn’t mean people bought more widgets. It could be that they bought fewer widgets but paid more for them.

This is exactly what’s happening in many retail sales segments.

After telling us we don’t have to worry about a recession anymore (despite the fact that the Atlanta Fed projects a second quarter of economic contraction — literally a recession) the AP admitted that the jump in retail sales was primarily driven by higher prices. But the intrepid reporters at the Associated Press assured us that the American consumer is “still providing crucial support for the economy.”

And how exactly are they doing that?

They certainly aren’t earning more money. According to the latest data, real average hourly earnings fell 1% for the month of June and were down 3.6% year on year.

So, you can MasterCard, Visa, Discover and American Express for the spending spree.

Consumers are running up credit card debt at a staggering rate. We don’t have June’s consumer data yet, but we know that despite the drop in retail sales in May Americans added another $22.35 billion to a debt load that was already at record levels.

Revolving credit, primarily reflecting credit card debt, rose by $7.42 billion in May. That was an 8.1% increase. To put that into perspective, the annual increase in 2019, prior to the pandemic was 3.6%. It’s pretty clear that with stimulus money long gone, Americans have turned to plastic in order to make ends meet as prices continue to skyrocket.

My guess is that the June consumer credit data will reveal an even bigger jump in credit card debt reflecting the increase in retail sales.

Consumer confidence is in the gutter, but it appears a lot of people have taken on an “eat, drink and be merry for tomorrow we die” attitude. They’re still spending. But they’re borrowing to do it. And tomorrow is fast-approaching. And with it depleted savings, looming credit card limits, and a continuation of rising prices.

This is simply not a sustainable trajectory, no matter how the mainstream press tries to spin it. The question is how much longer can over-indebted consumers keep paying these upward-spiraling prices? Especially given the fact that the Fed is now raising borrowing costs?

401k IRA Rollover Free Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

This Looks a Lot Like the Dot-Com Bust With One Big Difference — Inflation

This is starting to look a lot like the popping of the dot-com bubble with one big difference — inflation. Beginning in mid-June, we saw a significant bear market rally in stocks. But the recent declines have wiped out those gains and more. For instance, the Dow jumped 14% during the 2-month rally. By the […]


Gold Is One of the Best Performing Assets of 2022

Given historically high inflation, why haven’t we seen a big rally in gold and silver? There are a number of factors that have weighed on precious metals, but as the World Gold Council points out, it’s important to put gold and silver’s recent price movements in a broader perspective. In fact, gold has been one […]


Feelings Trump Economics: Price Gouging Edition

Hurricane Ian is taking aim at Florida. That means there is already talk of “price gouging.” People have a visceral emotional reaction to people raising prices during a disaster. But it is nothing but feelz. In fact, “price gouging” serves an important economic function. Not allowing prices to rise actually causes more harm.


Fed Policy in a Nutshell: Live in Hope; Die in Despair

During his post- FOMC meeting press conference, Federal Reserve Chairman Jerome Powell said, “Hope for the best; plan for the worst.” I think he meant, “Live in hope; die in despair.”


Retail Sales Headline Reveals Mainstream Cluelessness About Inflation

When it comes to the economy, inflation, and the Federal Reserve, the mainstream just doesn’t get it. This headline from Fox Business reveals the level of confusion. “Retail sales unexpectedly edge higher in August despite soaring inflation” [Emphasis added]


About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now