After a weak July, US retail sales surprised to the downside in August. Most economists missed it except for our recent guest, Andrew Zatlin, head of Moneyball Economics, who consistently beats the consensus on widely-watched economic benchmarks like payrolls, retail sales, and jobless claims.
How does he do it? Zatlin's got a variety of tricks up his sleeve but one of the most interesting is his Vice Index, which tends to lead retail sales by nearly a quarter.
As you can see, it peaked around mid-year and has been forecasting a general slowing in retail sales heading into the second half of the year, as we've seen.
How does it work? Zatlin's Vice Index looks at economically-sensitive areas of the economy—mostly cash-based businesses—which tend to give you a good idea of how much money Americans have and how confident they are to spend it.
When consumers are feeling good and have more cash in their wallet, they tend to spend a bit more on gambling, booze, and things like escort services, i.e. vices.
So far, the US consumer has been largely holding up the economy, but Zatlin believes that trend is coming to an end. Specifically, he's forecasting a consumer pullback through the end of this year with layoffs likely to increase after the holidays.
Consider Andrew Zatlin: We're in the "Eye of a Hurricane"
"This is not an environment where a consumer is going to rush out and just splurge... we're at a very harsh inflection point. If companies don't see revenue growth come January, there will be rounds of layoffs and that's my position is that we are going to see it in January."
In order to tell whether things might get ugly or not, Zatlin outlined a few key items for our listeners to watch: auto sales, jobless claims, and the strength of holiday spending. Of course, there's always the chance the Fed may hike rates as well, which, he said, would be a major policy mistake given the weak economic environment.
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