Division of Research

Commentary
from Aug '08 Indicators

In recent months, inflation-adjusted retail sales for South Carolina have slowed considerably. However, because the series is quite volatile and influenced by seasonal factors, a more telling picture emerges looking at the 12-month average of real retail sales. Figure 1 is a plot of the smoothed real retail sales since January 1996. As seen, this series does a good job at tracking the state of the Palmetto economy, showing a growing economy for most of the period but with a clearly marked recession in 2001/2003. On the other hand, the data for the most recent months shows a stagnant economy. It is interesting to contrast Figure 1 with Figure 2, which is total employment in South Carolina for the same time period. Clearly, both series exhibit very similar trends showing the growth and recessionary periods of the economy. A closer look reveals peculiarities of movement in the two series that are worth mentioning. In the last recession, employment increased steadily until the peak in June 2000. That was followed by one-and-a-half years of job losses, and, from January of 2002 until January 2004, employment remained flat. Only afterward did employment show consistent gains. In contrast, retail sales flattened a year before the first observed declines in employment (between June 1999 and June 2000). Following June 2000, there was a bump in sales lasting several months but eventually tapering off. However, starting in June 2003, six months before employment picked up, sales had already resumed a steady growth path.

When looking at the current situation, economic analysts have to work with employment numbers that are preliminary and may be substantially revised in the following year. However, retail sales data have the advantage of being accurate and not subject to revisions. Could the retail sales data help us understand the present state of the South Carolina economy? The patterns observed in the data may not repeat again. But, if these patterns offer any guidance, the South Carolina economy is not on the brink of an expansionary period. Quite to the contrary, a long period of flat sales may suggest that economic conditions could get worse in the near future. o

                     Paulo Guimarães, 9/26/08