Retail sales plunge what happens to GDP?

Real Retail and Food Services Sales (RRSFS) compared to Real Gross Domestic Product (GDPC1), April 1998 to April 2013

Retail sales for the first week of April plunged 2.7%, when compared to the first week of March – what’s the driver and we should we care?

It seems the well known sequester and its effect on government spending is starting to bite. But the sequester is taking place in an overall trend of state and local governments to cut spending, so the US economy clearly has strong impediments to growth. Retail sales are important since the US has an economy driven by consumer spending and as these expenditures fall an important component of US GDP falls.

The chart above shows two series: Real Retail and Food Services Sales (RRSFS, black line, percentage change from one year ago) and Real Gross Domestic Product (GDPC1, blue line, percent change from previous report) for the period April 1998 to April 2013. Each series is measured quarterly but reported annually. To the eye there is a clear relationship between changes in retail sales and changes in GDP. I decided to explore this further and calculated correlations which are reported in the table below. It seems changes in retail sales leads changes in GDP with a three month lag; in other words, as we see retails sales increase or (in this case) decrease, GDP follows three months later. Not good since GDP is already weak and falling.

Correlation of changes in retail sales & GDP

Lag Correlation
Current 0.70
3M 0.87
6M 0.72
9M 0.51
1Y 0.26

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