Retail Sales vs. Money Supply

Click to enlarge.

The linear trend line in blue is for those who think the growth in the money supply should have a direct effect on the growth in retail sales. One might call this group the optimists. They hope for a return to the blue trend line and all will be well when it does.

The logarithmic trend line in red is for those who think the growth in the money supply is having a diminishing "bang for the buck" effect on the growth in retail sales. One might call this group the pessimists. They brace for a return to the red trend line and all will fall apart when it does.

Based on the correlation seen in the trend lines, I'd say the pessimists have the stronger case.

I am between the two camps, with a decidedly pessimistic bias. I do not think the Fed has permanently removed the possibility of recessions. I would also not want to be an optimist when the next one hits (whenever that is).

And lastly, there's one group left. The hyperinflationists seem to think that not only will we make it back to the blue trend line but we will surpass it with great abundance. $10 trillion in monthly retail sales here we come! And when might this happen? If history is a guide, it is *always* a few months away. You just need to be extremely patient!



See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: Real Retail and Food Services Sales
St. Louis Fed: Retail Sales (Discontinued Series)
St. Louis Fed: MZM Money Stock