Back to Trend Growth, Not Trend

The retail sales report for June was weak, as expected. From Bloomberg:

Sales at U.S. retailers dropped in June for a second month, indicating the economic recovery dissipated heading into the second half of 2010.

Purchases decreased 0.5 percent, more than projected, after declining 1.1 percent in May, Commerce Department figures showed today in Washington. Excluding auto dealers, demand fell 0.1 percent, matching the median forecast of economists surveyed by Bloomberg News…

…“The consumer is losing some momentum,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York. “Job gains are not enough to bring the unemployment rate down. It means the recovery goes on, just at a slower pace.”

Looks like the pent-up demand was been satisfied. Retail sales excluding gasoline have now reverted back to the pre-recession growth rate (growth rates are log approximations):

For those counting, the gap between prerecession trend and actual sales now exceeds a trillion dollars – correct, a trillion dollars of foregone spending relative to the previous trend. That gap is growing by over $50 billion each month. One can argue that the previous trend wasn’t sustainable, but where would sales be if unemployment rates were closer to 5% rather than 10%?

Just more evidence that the US economy is settling into a suboptimal equilibrium.