Weak retail sales

Date posted: September 13, 2010

The latest national numbers for retail sales weren’t encouraging. After adjusting for typical seasonal effects and inflation, retail sales essentially showed no improvement. Why is this important and what does it say about the economy? N.C. State University economist Mike Walden weighs in.

“It is important because consumers in our country drive our economy. They account for 70 percent of all spending, so really as consumers go so goes our economy. And of course retail sales took a big hit during the depths of the recession. They have recovered; however, they are not back to where they were pre-recession. And … in the last few months, they have actually been flat — neither going up or going down — after you make those adjustments.

“Most economists think retail sales will not return any time soon to where they were pre-recession. A big reason has to do with housing values. In the early part and mid part of the 2000s, consumers were accessing the equity in their homes to drive a lot of their spending. In fact, about almost $1 trillion each year was borrowed by homeowners through home equity loans, and they used that to spend money. With home values down on average 30 percent across the country, people are not accessing their home equity. In fact they are worried simply of being able to keep up with their mortgage payments.

“So that is a big reason why although retail sales are better than they were a year ago. We don’t think they are going to go back to pre-recession levels.”

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