The mixed messages on the U.S. economy continue. Retail sales -- a key indicator of consumer demand -- were virtually flat in August. While it's hard to judge the recovery through granular monthly data, we're beginning to see a trend forming: although the spending doesn't appear to be contracting, it is slowing.

Here's the chart showing total retail and food services from Commerce Department data:

retail sales 2011-08.png

This shows the drastic decline in consumer demand after the financial crisis hit. Then, from 2009, retail sales gradually began to grow again. If you imagine a line being drawn from about April 2009 through March 2011, you can see that the upward trend is pretty clear. Over the period, the average monthly growth of retail and food services was 0.6%.

But now look at the trend from April 2011 through August. You can see that it is much flatter than the line you just imagined. Over this period, average monthly growth was just 0.1%.

Of course, inflation should figure in here somehow, and the numbers shown don't account for it. The Commerce Department does not provide inflation-adjusted sales. We'll get some data for the Consumer Price Index in August tomorrow. If prices declined, then this could imply that demand growth wasn't so anemic during the month after all. But the recent trend's 0.1% growth almost certainly isn't keeping up with inflation over the period, which averaged 0.2% per month from April through July. 

At this point, August's results appear to fit in pretty well with the broader trend of slow spending growth we've seen since April. If consumer demand continues to rise at a pace this modest, then hiring won't increase much either.

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