January retail sales were not miserable

Zero Hedge, a reliable source of negatively-spun information, summed up today's retail sales report like this: "Retail Sales Plunge Twice As Much As Expected, Worst Back-To-Back Drop Since Oct 2009." On the surface, the news was indeed disappointing, with overall retail sales falling much more than expected (-0.8% vs. -0.4%). But considering the plunge in gasoline prices in recent months (which is actually a very positive development), sales weren't bad at all.

The chart above shows total retail sales adjusted for inflation. Here we see that January's weakness is almost insignificant. Real retail sales rose 2.9% in the 12 months ended January, and that's almost exactly the average annual rise we saw in retail sales in the years prior to the Great Recession.

Abstracting from autos and gasoline, sales were up 5.7% in the past year. Nothing unusual going on here.

Abstracting from the most volatile sectors of the retail report (building materials and gasoline), and adjusting for inflation, there was actually a decent pickup in growth over the past year. This measure of sales rose 3.9% in the 12 months ended January, and that was the fastest such growth in the current economic expansion. As the chart above shows, however, sales are still quite low compared to where they could have been had this been a normal recovery. 

This has indeed been a sub-par recovery, but there are still no signs of emerging weakness. And in some respects, the outlook is even improving on the margin.