No green shoots in retail

Most economists, including myself, are fairly confident that the economy has at least bottomed out. The report on retail sales that came out yesterday (WSJ gated, NYT ungated) indicates that the recovery is not going to start with a consumer rebound. No retail sector seems immune; Target down 6%, Saks down 15%. Retail execs do not expect matters to improve for another year; some chains are cutting back further on inventories and cutting back holiday orders.

The other candidates for driving the recovery are investment, exports and government. Investment has three major components: plant and equipment, housing, and inventories. Housing has been doing slightly better the last three months, but I would not place any bets on a housing resurgence any time soon. Will firms be willing to invest in big ticket items and inventories if consumer spending stays flat? Don't count on it. As for exports, they are driven by GDP growth in other countries (which actually is looking up) and the exchange rate. This has some potential.

The stimulus package will start kicking in later this year and next, so we can count on government spending to give a short term boost to the economy. But looking at the last 80 years of macroeconomic data, I cannot find any instances of a sustained economic recovery driven by government other than possibly World War II. Let's hope for better news from consumers soon!