Although retail sales in the US have been strong, some important portions of the consumer market, including home and vehicle sales, have lagged expectations.
Existing home sales are down 1.5% year on year, and light vehicle sales are down about 2%. Overall, advanced retail sales are up 6.6% year on year, although negative surprises are not uncommon. Bed Bath and Beyond reported disappointing earnings today and its stock fell 14% in after-hours trading.
During the past year, monthly changes in retail sales have tracked changes in credit card balances with a correlation of about 60%, suggesting that consumers are highly dependent on short-term credit to maintain spending.
The variable that tracks monthly changes in revolving credit best is retail sales ex-auto.
Is this an indicator of prospective economic weakness? Maybe, particularly if it continues for quite some time. Below s a chart of the 12-month rolling correlation of changes in revolving credit vs. changes in retail sales ex-auto,
The longest period of high correlation between change in revolving credit and change in retail sales occurs just before the 2008 crash. The correlation remained elevated (in the 60% range) for roughly two years.
There has been one blip in the series at the end of 2013 and in early 2014, when the correlation rose briefly to around 60%, and no recession followed. The most that can be said of the present high correlation between spending and credit card balances is that it bears close watching.