From the President's Desk: Tapping the Brakes

Consumer activity in the US is slowing in its rate of rise, and in conjunction with the slowing rate of business-to-business spending, the US economy as measured by GDP will experience a noticeably softer rate of growth in 2019 compared to 2018.

We have tentative peaks in the rates of growth for both nominal and deflated Retail Sales, with quarterly growth rates tracking below the 12-month (12/12) growth rates, a classic negative ITR Checking Point™. But the peaks are tentative, and it would not surprise us to see a little more rise in the 12/12s before the final high for this business cycle is firmly established. Retail Sales 12/12 decline will be a clear indicator that businesses in the consumer supply chain should plan on only moderate sales growth in 2019, i.e., less than in 2018.

Retail Sales on a nominal (not deflated) basis are posting a 5.4% 12-month growth rate, but the deflated rate of growth is a much milder 2.8%. It is important to watch the deflated figure as we go through the next several months. A decline in this 12/12 to a 2.5% growth rate will constitute a clear warning that we are indeed seeing the brakes being tapped for Retail Sales growth. A descent to 2.1% would be a louder, more ominous warning regarding 2019. The easiest way to keep track of the downward trend and the 12/12 value is through our ITR Trends Report™.

E-Commerce, and Amazon in particular, are not immune to the slowdown in consumer activity, though you would think so, listening to people talk. The truth is, they are subject to the same economic pressures as the rest of us. It is true that E-Commerce, with a 12/12 of 15.6%, is growing at a fast pace, and that it is increasing in proportion to total Retail Sales (8.3% as of September 2018 compared to 7.6% one year earlier ), but the growth is not in a straight line. The E-Commerce 3/12 stands at 14.3% and is declining below the 12/12, an ITR Checking Point that indicates the business-cycle momentum is shifting from positive to negative.

Amazon’s 3/12 is also declining below its 12/12, signaling a shift to the back side of the business cycle. Furthermore, this year’s 10.8% seasonal rise to date is less than half the seasonal rise posted in 2017. Amazon’s revenue is huge, at 3.7% of Total Retail Sales and growing (last year at this time they were 2.8% of the total) , but they are nevertheless subject to business-cycle and consumer pressures. Readers selling through e-commerce including Amazon should take particular note that they are not immune to the slower rate of rise projected for Retail Sales in 2019.

Alan Beaulieu
President