"This does not solve the puzzle between the increase in employment and the weakness in real retail, however I think the answer is that the monthly retail trade survey has a few bugs in it.
We can separate the retail trade survey into the Completely Enumerated sector (a population measure of large retailers) and a sample of the rest. Re-weighting the implicit price deflators, to reflect the different sales mix of the larger CE retailers and the smaller sampled retailers, we can then look at what we know for sure (the CE sector) and what we’re just guessing about (the sample).
Nominal spending growth in the CE retail sector was 1.8%q/q in Q1, and price inflation was around 0.8%q/q, leaving us with a 1%q/q real increase in retail spending. This seems more consistent with the employment data.
In the sample, we find that nominal spending fell by 0.8%q/q, with real spending down 1.3%q/q, thanks to a +0.5%q/q increase in retail price inflation.
I find the divergence in sample and CE sales a little hard to make sense of, and think that the CE data also comports better with my assessment of the broader economy – in particular it better fits the ongoing down-trend in the unemployment rate, and increase in job advertisements.
Thus, I conclude that the recent ‘weakness’ in retail sales probably has been overstated. Even if it hasn’t been overstated, wage gains and jobs growth appears to have been sustained, and the subtraction in spending power from the food and fuel tax will at least end, and probably (partially) reverse."
