What Spending On 'Vice' Really Says About Retail Sales

Authored by Andrew Zatlin via MoneyballEconomics.com,

Total Retail Spend Grows On Hurricane-Linked Demand

First, I want to point out that the two hurricanes that have devastated Texas, Florida, and Puerto Rico have been horrible.

Hundreds of thousands, if not millions of peoples’ lives were affected. And their circumstances have changed dramatically over these past couple months.

BUT… these hurricanes were a positive for economists looking for a boost in spending.

These hurricanes disrupted routine spending… but boosted spending on autos (car/truck replacement), building materials (home repair) and gas prices (prices surged).

Vice Index Now Points To Lower Spending

Recent downward revisions to retail data confirms that the Vice Index correctly predicted a pullback in spending growth.  

  • Trend: The latest data points to a near-term bottom in the 4Q.
  • September: August Retail (ex-Autos/Gas) spending came in at 3.3% y/y.  Further erosion means September will dip to 3.1%

Wage Growth Levels Off On Improved Comps

The collapse in 2H 2016 compensation growth will boost growth rates through 2017.

A similar pattern is visible in the Vice Index chart above.

Accompanying the slide in compensation growth is a similar slowdown in the savings rate.

It’s getting harder to squeeze more spending from the consumer. Their savings are down. They don’t have as much money to spend leisurely as they used to.

National Retail Federation Predicts Holiday Spending Growth

Per the NRF, a trick of the calendar will pull in spending and prevent the spending rate from falling below last year’s.  

Weekend days are always a bigger shopping day, regardless of the season. And this year the holiday period gets to include an extra one. Otherwise the spending rate would fall below last year’s.

That’s part of the softness is being echoed in the Vice Index data. The other part is that the NRF notes the weakness in the lower income segment. No doubt the strong stock market and continued job market strength will underpin middle and upper income spending.  But will it be enough to offset the broader weakness?

Vice Index says no.

Gambling Outlook – Still On A Losing Streak

Middle America is under financial stress.

Over the past year, US casinos (ex-Vegas) have enjoyed only 1 month of positive growth.

Las Vegas is doing a bit better thanks to the return of Chinese gamblers: YTD gaming revenues are up 3.5%.

This reflects the bifurcated US economy: middle America is pulling back on frivolous activities while upper income consumers continue to spend.

(NOTE: Will higher spending by the 1% be enough to offset a spending pullback by the bottom 99%? We’ll have to find out…)

Is Cannabis Replacing Beer?

Beer consumption fell in 2016 for the first time since 2011 (per IWSR).

Several reasons are possible:

  • Changes in drinking habits:  Millenials are socializing differently: it’s popular to hang out at home with friends and “Netflix and chill.”  And that’s driving a shift: drinking at bars (on-premise) has dropped while drinking at home (off-premise) has grown.
  • Shifts in taste: Beer is down, but distilled alcohol is up.  That’s largely from new styles of tequila and bourbons being released, and the big marketing campaigns pushing them.

But maybe cannabis legalization is also playing a role.

Go back to the Netflix-and-chill socialization.  That’s very pot friendly too.

A survey in March 2017 by Cannabiz found that 27% of beer drinkers would switch to cannabis when/if it was legal.  

In 2016 Cowen & Company noted that beer consumption dropped the most in precisely the States where pot was legalized: Oregon, Washington, and Colorado. Denver saw a 6% drop in beer consumption.


Major bellwether industries for the retail consumer are showing signs of distress. The upcoming holiday season will help… but most consumers are already maxed out. They can’t NOT buy their friends and family holiday presents. After that… who knows when they’ll make those big purchases again.


wmbz Thu, 10/12/2017 - 13:56 Permalink

"They can’t NOT buy their friends and family holiday presents". You might think that but the great U.S. consumer is very well trained.They'll take out a 3rd. mortgage, or go to a pawn shop, so they can buy that cheap plastic crap from China at X-Mas time.

Dragon HAwk Thu, 10/12/2017 - 13:58 Permalink

Around here, Home brew Beer is displacing a lot of Beer Distributor Purchases, I am sure they are not counting the Craft Brewers in their surveys, at least nobody asked me how many  5 gallon  batches i made this year...

Iconoclast421 Thu, 10/12/2017 - 14:01 Permalink

Good for 300 more points on the Dow. Vice index was low in 2013 and look what happened then. Central banks print more in a month than americans spend on vices in a year.

Yen Cross Thu, 10/12/2017 - 14:02 Permalink

   I wonder if the markets are going to rally if retail sales are shitty tomorrow? Bad news is good good news with interest rates, and a dovish Fed.  Ole Yellar is so far out over her skies her nose is scraping her toes.

Snoopy the Economist Thu, 10/12/2017 - 14:04 Permalink

"but most consumers are already maxed out. They can’t NOT buy their friends and family holiday presents." Really? Virtually nobody expects a gift from me at Christmas and I tell everyon that I need/want nothing - including my wife. Now if I can just get her to stop frivilous spending altogether - still working on it.