Something Has To Give Here

January retail sales data were not good by any measure, and they have economists trying to fit the puzzle pieces together today.

The chart above - from Neil Dutta, head of U.S. economics at Renaissance Macro - does an excellent job of illustrating the disconnect. Recent retail sales data just don't square with recent jobs data.

"Something has to give," says Dutta.

"There is a widening disconnect. Either retailers stick with it and stay confident on the expectations that sales will improve, or they will be forced to cut employment dramatically."

At present, Q4 GDP is tracking 2.4% down from the initial estimate of 3.2%, a sharp cut. However, aggregate hours in Q4 were revised up because of stronger job growth. Indeed, aggregate hours expanded 1.9% in Q4. Meanwhile, business productivity rose 2.6%. Combining the two -- total hours plus output per hour -- implies that growth rose 4.5% in Q4. Something has to give. Either GDP goes up, aggregate hours fall, or productivity contracts.