Retail sales in March fell by 1.1%, with the biggest drop coming in electronics and appliance stores, which fell by 5.9%. This provoked a herd of handwringing among economists, investors, and journalists. The WSJ wrote:

U.S. retail sales in March made a broad-based decrease that left a shadow over recent signs of improvement in the slumping economy


“It’s disappointing,” said Hugh Johnson, chairman of Johnson Illington Advisors in Albany, N.Y. “It tells us quite clearly that consumers continue to retrench, or are doing less borrowing and spending and more saving.”

BZZZZ! Thanks for playing.

In fact, falling retail spending is a sign that the economy is starting to undo the damage of recent years caused by excess borrowing.

Remember that a hefty chunk of retail sales—and certainly electronics and appliances—is comprised of imports. So when you go and buy that flat screen television, you are not creating factory jobs in the U.S., since the tv was almost certainly manufactured abroad.

To put it another way, when you buy that tv, most of that money is not stimulating the U.S. economy. Instead, what you are mainly doing is creating is a bigger trade deficit, and a bigger debt to the rest of the world.

(A note on numbers: I’m currently deep inside the BEA’s input-output tables. Soon I’ll emerge, and have a better idea of how much of electronics purchases stay in the country, and how much goes abroad).

We don’t want a bigger debt. We’d like to see the trade deficit fall, and the pocketbook savings rate rise. That will accelerate the rate at which the U.S. can emerge from this financial crisis.

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