We continue our series of analyzing a zerohedge article.
We examine whether there is any merit in declining retail sales and vehicle sales signaling a recession.
We find retail and vehicle sales have never been a good recession signal.
The latest ZeroHedge article, cites that US retail sales tumbled into recession territory. We set out to examine if this is true. Retail sales, excluding food services, have declined for the last three months. Is this a sign of a recession? Looking at the Federal Reserve Data, retail sales are a lagging indicator. The biggest three month declines in retail sales since 1991 have occurred on December, 1 2008, November 1, 2008, and October 1, 2008.
We also calculate the average three month change in retail sales. The most current three month decline, March 1, 2016, ranks number 20 in biggest declines since 1991. What about monthly declines that have occurred three months in a row? Since 1991, the U.S. has had eight periods where retail sales have declined three months in a row. There are two things that are notable. One is that it appears there is no relationship between declining retail sales and the beginning of a recession. Two, three of the eight three month declines have occurred in the past thirteen months..
Table 1: One month Decline Over Three Months
Figure 1 display the annual retail sales year over year change in retail sales relative to its two-year moving average. What is noticeable is that the year over year change has been on the decline since 2012. The average annual retail sales growth from 1996 to 2007 was 5.5%. The average retail sales growth since 2012 to 2015 is 3.37%. The year over year change has declined to levels last seen during recessionary periods. Zerohedge article believes this is an indicator that a recession is coming.