The Vice Index has been revised and is now chained to January 2009. The data itself goes back to 1993.
Vice spending is where the desire to spend meets the ability to spend. As the heart of consumer spending, vices adhere nicely to more conventional economic benchmarks like retail sales. Retail is one of the top benchmarks eyed by Wall Street and it comes in two flavors: Total Retail Sales and Retail Sales ex-autos and gas. The latter speaks more to the day-to-day consumer spending habits – gas prices can be pretty volatile and consumers buy it regardless of price. Autos are not really tied to everyday spending.
Moneyball Economics’ Vice Index, forecasting economic strength based on leisurely and sinful spending, is pointing to continued consumer strength through 3Q.
The Vice Index is strongly correlated – factoring in a multi-month lead – with retail sales (ex-autos and gas). It is pointing to a slight uptick for May, followed by steady growth of about 4% year over year (Y/Y).
Keep in mind that the total retail Y/Y growth will come at a slower pace (due to lower gas prices).
Note the surge in retail sales that began last summer. That’s when gas prices started to plunge. It’s also when Obamacare began to hit its stride. With those things helping to pad some wallets, consumer propensity to spend remains strong.
While the correlation is evident, the Index has recently diverged from total retail spending.
Drilling down, total retail has slowed faster than otherwise indicated by the Vice Index. That’s mostly because of oil prices.
Question: Why isn’t the gas price dividend showing up in other pockets of retail spending? Shouldn’t retail ex-autos and gas be increasing if falling prices at the pump have put money into consumers’ pockets?
Answer: Retail figures exclude a big chunk of consumer spending. Spending on fun (food services and drinking) continues to surge.
Except for food services and drinking, retail figures do a lousy job of tracking recreation. Disneyland’s multibillion dollar ticket sales are not included. Neither are airline tickets and hotels. Neither is gambling, prostitution and drugs. That’s where we come in and set the record straight.
Related podcast interview:
Moneyball Economics’ Andrew Zatlin: Vice Index Offers Inside Look at the U.S. Economy
