March 10, 2023

Hello. This is Brian Beaulieu from ITR Economics, CEO, Chief Economist. I wanted to bring you a little insight into the world of retail sales. This blue line here, the thicker blue line, is retail sales adjusted for inflation. There’s so much to be gleaned from this chart. If you look along the bottom, you’ll see the different years. In 2020, you can see COVID happened. In 2021, that blue line just soars. Retail sales soared. And this is deflated, so it isn’t like we’re seeing prices going up and that’s why we’re getting this aberrant trend. This is volume of retail sales and that’s what we have tried to describe before as the Peloton effect. I think the same thing happened with household furniture, patio furniture, you name it. Anything that isn’t an ongoing recurring purchase, but tends to be an annual or every five years, four years, six years, 10 years, it all got crammed into that period of time.

Now, obviously, because the Fed isn’t going to keep creating all that loonie money that they did back then, and Congress isn’t going to keep writing stimulus checks, things have to go back to normal. And they already are. It’s probably hard for you to see on this chart, but this data goes now through January 2023. The 12-month moving total has flattened out at best. Actually, it has started to edge down. That retail rate of change is running below zero for the last three months and for the last three months, written again, the date is through January, we’re looking at we could average month to month changes in retail sales. So when the Federal Reserve says the economy has started the year off stronger than they expected, I wonder if they know this or I wonder if they just expected it to be worse. I don’t know.

Or maybe they were just talking about the employment situation, which is going to be very hard to beat down demands so that you finally hurt our need for labor. The other point I wanted you to see on this chart, if you wouldn’t mind, is looking at that tangent line that we drew on here. This thing has to become normalized. We’re going to get back into a normal growth trend. You can’t supersize the economy and not expect anything else. It’s going to be hard for you to do on the screen, but when I did this out and I looked at that normalized tangent line, it’s about 2024. The end of 2024 is about when we get back into what could logically be when the reality line, that thick blue line in this tangent line, come back into play. And that tells us that we’re going to have 2023 and 2024 disappointing retail sales activity first in deflated dollars, but eventually in 2024, also in nominal dollars.

Got to get back on this trend, and there’s no easy way to do it. And that ties into why we think there is going to be this recession, despite the health of the consumer at this time, and real incomes going up, et cetera. Can’t create these situations and expect that there’s no price to be paid on the other side. Figure out how you can best gain market share when some of these trends are going sideways or even going negative because that becomes the name of the game. You are going to have to figure out what is it that makes me that good, that unique in the marketplace that they want to pay for me even when these things are going on. Thanks for listening. I’m Brian Beaulieu from ITR Economics. I’ll see you next time.