Retail Sales Up in April: Why Consumer Spending and Economic Health Are Associated?

Retail sales increased .4% in April hinting at a possible strong economy. Its a little like looking out the window and seeing semi sunny skies. Not sure if I should bring or leave my rain jacket. The rise in consumer sales is used by some economists as a method of gauging general economic health. It just isn't a perfect measurement and should be paired with other economic indicators to foreshadow the economic story (Remember that all economics is just human behavior in quantitative form).

The article Retail sales rebound in April, pointing to steady economy provides a level of analysis of consumer spending. Home do-it-yourself retail is up and restaurants are up. People must be eating after working on their houses. To busy to cook. 🤷 There hasn't been a major retraction in the consumer market even though the cost of using credit cards and such financing is high. (You can always follow the 'Don't Buy Stuff Plan')

Thinking about retail spending and its impact on the economy one could come to a question, "How does consumer spending help predict the economy?"

BLS has some categories they use to explain predictability in Beyond the Numbers. I also came across something by the White House on how economists determine a recession I thought was slightly off topic but very interesting. How Do Economists Determine Whether the Economy Is in a Recession? The Federation of American Scientists also put together one of the better explanations in Consumer Spending.

Basically, as consumer spending rises it is related to general economic health. People spend because they feel optimistic and because they have extra cash to burn. Consumer spending and economic health is not a 1-to-1 ratio. It sort of hints at something without a commitment. To make a more thorough analysis we would need additional measurements to increase the likelihood of being accurate. It doesn't mean its not an indicator, but that its not as useful unless other positive data come out to support a trend line.

Economic forecasting reminds me of fortune telling but lots and lots of numbers. One should wonder how big data is going to change those numbers and many of the economic assumptions will go with that change. For example, if you have significantly more information on economic activities, then the way we think about those activities is going to change, theories will adjust, so on and so forth. If its a Digital Age platform shift with deep economic implications then I suspect new theories would come out (I'm sort of working on one but I'm not sure if its 100% a new theory or just borrowing from other theories. It seems fairly accurate so far. 🤔)