The Good News Continues to Roll In

The US Department of Commerce released its advance report on retail sales in September earlier today. Sales were down 1% from September 2007, and down 1.2% from August 2008. Sales for the third quarter 2008 (July - September) were up 0.8% from the third quarter 2007.

Not bad, right? Wrong. Commerce reports nominal sales, sales unadjusted for inflation.

I'm expecting consumer prices to be roughly unchanged from August to September, so the 1.2% drop month-to-month sounds plausible. But contine that for a year (which won't happen) and sales would be down 14% or so.

Adjusted for inflation (5% from September 2007 to September 2008; 5.3% from third quarter 2007 to third quarter 2008), retail sales are down something like 6% year-to-year. And consumption currently accounts for about 70% of GDP. With export growth slacking off, construction in a full-bore recession, and businesses starting or continuing to scale back on investment spending, the real likelihood is a substantial--1%, probably more--decline in real GDP from a year ago.

The recession is upon us.