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What's Down With Nominal Retail Sales Growth?

Asha will do her usual excellent job of synthesizing the February retail sales report and highlighting the important implications of it. But I wanted to call your attention to an interesting trend change in retail sales. As shown in the chart below, the trend in nominal retail sales is down. The year-over-year change in the 3-month moving average of nominal retail sales was 3.69% in February (read off the left-hand scale), down from its peak growth of 9.25% in August 2005 and the slowest growth since June 2003. Why the pronounced downward trend in the growth of nominal retail sales? Well, perhaps because of the downward trend in overall consumer inflation, largely as a result of the decline in oil prices from their 2006 peak of $75 a barrel. But why would the decline in oil prices be associated with a decline in the growth of nominal retail sales? Won't folks spend their gas pump savings at the mall, thus maintaining the growth in nominal retail sales? Perhaps some folks are starting to develop anxiety about their finances and are depositing their gas pump savings into a savings account at a bank? Whatever the reason for the current sharp slowing in the trend of nominal retail sales growth, past such sharp slowing trends have typically been associated with declines in the federal funds rate - presumably purposely engineered by the Fed - and/or recessions. But it's probably just the weather this time.

 

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