There is a straight-line progression that moves between four of the economy’s key economic indicators. Employment growth plays a crucial role in income growth, which drives retail sales and translates into personal consumption expenditures in the national accounts. In turn, consumer spending makes up 70% of Gross Domestic Product (GDP) in the U.S. and about 55% to 60% of Canada’s GDP.

With respect to retail sales figures, there is a significant difference in reporting dates between the U.S. and Canada. The figures south of the border are one month in advance of the data released north of the border. In the U.S., retail sales weakness has already shown up, with a year-over-year three-month smoothed figure of +4.4% and an actual figure of +3.9% in January 2008.

Two of the weakest areas for U.S. retail sales occurred as a result of the depressed circumstances in the new homes market. Furniture and home furnishing sales were -4.3% year-over-year on an actual basis and -2.2% on a smoothed basis. Building material supplies were -4.8% actual and -1.9% smoothed. Sales in another key sector, the U.S. auto industry, are now flat on a three-month-average smoothed basis.

Year-over-year retail trade job growth in the U.S. has dropped to only +0.4%. This figure maxed out at +2.0% in the summer of 2005. In another sector which is closely allied with retail − transportation and warehousing − employment growth is now essentially flat (+0.1%) versus the same month last year.

The bottom line is that the consumer has grown a little weary in both countries. Plus, the negative talk about financial markets and generalized uncertainty about the overall economic future is causing a more conservative streak to emerge. This alone, will slow consumer spending growth this year.

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