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JACKSON HOLE, Wyo. -- This is less complicated than it seems.

And it won't hurt a bit.

The July

retail sales


revealed a 0.7% increase. That topped trend by a tenth -- the retail series has risen an average 0.6% per month during the past year -- and produced an impressive 9.2% year-on-year increase, the second-fastest in more than three years.

In a grand sense, then, there is nothing absolutely "slow" or "weak" about the performance of this sales series, and it will therefore do nothing to comfort a


wanting demand growth to quit persisting/strengthening.

Yet one key measure of retail sales did show some slowing. Specifically, sales excluding building materials, gasoline and autos -- this series is called retail control spending -- rose just 0.1% last month.

That marks a sharp departure from trend -- control spending has risen an average 0.6% per month during the past year -- and puts this series on track to show a material deceleration between the second quarter (when it rose 6.4%) and the third (a projected 3.8% gain).

Why does that matter?

Because retail control spending is used to produce the goods portion of the

personal consumption expenditure

numbers that show up in the

gross domestic product

report. A sign that control spending is slowing now therefore introduces the possibility that the third-quarter consumption number -- and, because consumption accounts for 69% of GDP, the third-quarter growth number -- will show slowing later.

Which means it also introduces the possibility that the Fed won't have to jam that nasty syringe into the economy's rump.

So? Can we now stand straight and yank up our trousers?

Not so fast.

Enter service spending.

The problem (so to speak) with the retail sales series is that it captures less than half of the spending that goes on in any given month because it does not include spending for services.

Which, given that spending for services accounts for roughly 60% of all personal consumption expenditure, is kind of a big prollem.

So, although retail control spending is used (as mentioned above) to produce the broader consumption numbers, it has less to say about them than does spending for services.

And early indications are that spending for services will post a real (inflation-adjusted) 4.6% (annual) increase during the third quarter following a 4.2% increase during the second.

What does that mean?

That total consumption is on track to post a bigger increase during the third quarter -- a projected 4.8% gain -- than it did during the second -- a 4% increase.

And that will produce a 6.4% year-on-year rate of increase. Why is that important? Because the Fed is

fretting about "ongoing strength in demand in excess of productivity gains."

And because even the most devout New Era moron under the sun wouldn't be caught claiming that productivity

growth is keeping pace with that.

Now bend over.

Side Dish

Best Lawrence?