Growth

Retail sales beat this morning — up nine-tenths of a percent, and they beat expectations across every cut. But the headline isn't the number I'd circle. My favorite number in this report is the boring one underneath.

It's retail sales with inflation stripped out — 'real' spending. The headline counts dollars, and dollars grow when prices do. The real number counts what people actually carried out of the store. For most of the past year, it was barely positive — treading water against prices.

This month, real spending grew about four-tenths of a percent. After months of barely keeping pace with prices, that's a clear step up — people genuinely bought more stuff in May, not just paid more for the same cart.

And it's not just a gas-price illusion. Strip out gas stations and car dealers — the noisy stuff — and spending still beat forecast. The strength is broad.

Here's what makes it interesting — it cuts two ways. One reading's plainly good: real spending means demand is holding, which tends to keep people employed.

The other reading is the catch. Inflation just printed a three-year high, and producer prices a one-year high. A consumer who keeps spending into that doesn't give prices a reason to cool — and that keeps the Fed in no hurry to move its policy rate. Strong spending and lower rates soon don't usually travel together.

History says a consumer this resilient tends to buy the Fed patience. But not always — spending has rolled over fast when a one-time boost wore off, and there may be one here. Tax refunds ran about eleven percent bigger this year, a quirk of last year's tax-law changes, and that cash flows into spring spending. Refund money is one-time money — spent, then gone.

So the real question: was May the consumer truly pulling ahead — or a tax-refund-fueled pop that fades back to treading water? What tells us which is the next couple of reports, once the refund cash is gone. If real spending holds up and stays broad, the consumer's genuinely ahead.

If it fades, a lot of May was borrowed from spring. Knowing which number to read is the whole game, once you know what to look for.

The economy grew 1.6% last quarter, according to the GDP report — the number everyone treats as THE scorecard for the economy. But a single GDP print might be the most over-read number in all of financial news. Three quick reasons why.

First: that 1.6% is annualized. It's not what the economy grew in three months — it's what it would grow over a full year if the pace held. Actual growth from January through March was closer to 0.4%. A perfectly normal quarter; it just sounds bigger annualized.

Second: GDP swings hard — harder than the economy underneath it. Look at the last two years, quarter by quarter.

One quarter was negative. The next jumped to nearly 4%. Then back down to half a percent. Now 1.6%. Same economy, the whole time. That's why you can't read a single quarter — the dot is noise; the direction is the signal.

And third, it's old: this is January-through-March data, released at the end of May — the rear-view mirror, not the windshield. So read the trend, not the dot. The trend right now: cooled from 2025's hot middle, but still positive. Slowing, not shrinking.

Here's where it lands for you. GDP sits behind every ‘is a recession coming’ headline. And one soft quarter — or even a negative one, like early last year — is not a recession. A recession is a deep, broad, sustained decline, and a committee of economists declares it well after the fact.

The honest read: the economy is growing slowly, not contracting. That's the backdrop for your job, your next raise, the big purchase you're weighing — not boom times, but not the bottom falling out, no matter how one quarter gets headlined.

So next time a GDP number sets off recession alarms, do the Phoebe thing: ask whether it's one noisy quarter or a real trend. Right now, it's a slow-growth trend. The real question worth watching: does the next print, out June 25, keep cooling — or steady out?