According to WABC disc jockey Dan Ingram, the world slowed down on the evening of November 9, 1965. In an afternoon segment, as New Yorkers were commuting home, he noted that Jonathan King’s “Everyone’s Gone to the Moon,” sounded slow. The subsequent jingles during a commercial break were equally sluggish. As Si Zentner’s recording of “(Up a) Lazy River” also played in the background at a slower-than-normal tempo, Ingram saw the studio lights dim. It was the electricity! At 5:16 p.m., the Great Northeast Blackout of 1965 began near the Niagara-Canada border. The station’s turntables used synchronous motors, whose speed was dependent on incoming power, which was normally 60 Hz. Six minutes before the Big Apple lost its shine, the frequency was 56 Hz; two minutes before, it dropped to 51 Hz. When the station’s Action Central News report came on at 5:25 p.m., the staff remained oblivious to the cascading calamity across northeast states. Two minutes later, at 5:27 p.m., New York City was plunged into darkness.
The dismal science’s version of a blackout manifests as a power loss of the consumer purchasing variety. An overloaded Tuesday U.S. economic catch-up calendar revealed a downside surprise for September Retail Sales. The lowlight was the -0.1% month-over-month (MoM) drop in “control group” sales, which feed from this report directly into top-line consumer spending in GDP. Not only was this the first MoM decline in this series in five months; but because it happened in September, fourth-quarter momentum (September versus third quarter average) ground to an 0.5% annualized standstill rate vis-à-vis the third quarter’s more rapid advance 6.3% annualized rate.
The hit to purchasing power is more obvious when adjusted for inflation. Using Retail Sales excluding Food Services & Drinking Places, and deflating by the consumer price index for commodities, real retail sales posted a -0.51% MoM pullback in September after August’s marginal -0.04% MoM decline. Using the same comparison as the control group, at a -1.4% annualized rate, real retail sales momentum going into the fourth quarter is starting off in a hole compared to the third quarter’s 3.5% gain, which was north of the 2.9% longer-run trend.
Atrophying purchasing power echoed in the Conference Board’s sizable downside disappointment — its headline figure fell to a seven-month low of 88.7 from October’s revised 95.5 number (prior 94.6). Not one of the 50 economists Bloomberg surveyed foresaw an 80-handle. As explained:
“All five components of the overall index flagged or remained weak. The Present Situation Index dipped as consumers were less sanguine about current business and labor market conditions…All three components of the Expectations Index deteriorated in November. Consumers were notably more pessimistic about business conditions six months from now. Mid-2026 expectations for labor market conditions remained decidedly negative, and expectations for increased household incomes shrunk dramatically, after six months of strongly positive readings.”
The power loss was evident in the plunge in Income Expectations. This forward guide for consumer spending fell to a net 1.5 in November from 6.4 the prior month (yellow line). The 4.9-point compression may not seem large, but when it’s normalized, the -1.9 z-score jumps off the page. The sharp loss of optimism occurred alongside elevated labor pessimism. Expectations for “Fewer Jobs” came in at 27.5 (red line), while unemployment-rate-leader “Jobs Hard to Get” edged to 17.9 (blue line). To wit, Fewer Jobs has run above the 25-level for 10 straight months, a streak only matched in the recessions of 1980, 1981-82 and 2007-09. The up channel in Jobs Hard to Get, with an .89 correlation with the unemployment rate since 1967, suggests September’s 4.440% will not be the top.
Further corroboration came via the producer price index (PPI) for trade services, which measures margins for wholesalers and retailers and collapsed at the sharpest two-month rate on record in August and September. This generated a material easing in the year-over-year (YoY) rate to 1.5% in September from July’s high point of 5.9% YoY (green line). The fall in November consumers’ income expectations flags additional margin ahead as aversion grows to spending tomorrow’s income today.
From a wider angle, income expectations have stagnated over the last several years as the rally in the equity market continued apace. The S&P 500’s divergence (purple line) in the 2020s is novel versus the 2010s expansion when the U.S. stock benchmark index moved in tandem with the improving path for household take-home pay. Income expectations also guided household vacation intentions in the 2010s. After the post-pandemic disconnection between the latter and the former, the two recently realigned. November’s drop-off in intentions to 42.1 (lilac line) rendered October’s 46.7 an aberration. The concurrent decline in Truflation’s hotel inflation rate agrees; it contracted at -5.1% and -3.2% YoY rates in September and October, respectively (teal line).
At the state level, the Dallas Federal Reserve’s Texas Retail Survey adds valuable color. Current Retail Sales were reported at -6.3 in November, the fourth straight negative reading and sixth in the last seven months. In addition, Current Retail Sales have been below the long-run average of 2.6 in every month this year and have taken a toll on top-line expectations. Future Retail Sales also ran below Future Inventories in October and November. The fourth quarter-to-date supply-demand spread of -1.8 was only the seventh since the 2007 inception (light blue line). Contrasting the imbalance against Current Selling Prices unearths yet another disinflationary theme.
That’s what can happen when the retail outlook is upside down. Anticipated purchasing power loss in the Lone Star State, which represents roughly 10 cents of every consumer spending dollar spent nationally should not be dismissed. Consumer discretionary risks remain a front burner issue.