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Friday, December 11, 2009

Retail Plus

I am still sitting on a very irascible male. But things are better, so....

November retail sales release:
Click on this to make it legible.

While things are truly improving YoY, it is largely because we are getting further into the decline. Real retail sales are improving, but not by much, because more spending is shifting to the "necessity" categories. See the last line aggregating groceries, drugs(app) and gasoline.

An 0.1% change is very significant for classes of retailers; remember, this report is in millions of dollars. So this November, American consumers spent 312 million less on electronics than last November. Also, note that gasoline sucked up 2.7 billion more than last November. That is what is hurting us and damping the recovery.

However look at autos - people have ratcheted back spending long enough that the need for new autos is growing, and spending is increasing even though many people are out of work.

Here from the St. Louis Fed's Fred data are REAL retail (inflation adjusted) sales:

This only goes through October, however, just from glancing through the figures in the November table above one can tell that November's real sales aren't going to be that much of an improvement. Gasoline, for example, cost considerably more this November:

The cost of food has fallen YoY, but the cost of gasoline and drugs has risen YoY. See October CPI (the most recent). The swing in gasoline costs alone will have a thumping big effect on November's CPI. Consumer retail sales in the first quarter of 2009 got a big boost from the drop in gasoline prices; since that wore off we've been mostly bouncing along the bottom.

Adusting for inflation and population, per capita retail sales appears to be still drifting down. I guess we'd better be worried about jobs and incomes! For the most part, even consumers with jobs appear to be compensating for price increases in one set of commodities by shifting their consumption patterns and flat out cutting spending for other commodities.

Hopefully this situation will be stabilizing soon, but services have taken a hard hit over the last two quarters:

Accounting and legal did much better in the third quarter. I assume a decent portion of that stems from bankruptcies.

PS: See Shrinkwrapped's post on federal salaries for an inkling of just how far we are from getting the federal bureacracy in line with the private sector. Hot Air. SW writes:
When the bureaucracy is small and primarily involved with facilitating the functioning of a system, it can actually add value. However, as the bureaucracy grows, it inevitably (and often rather quickly) reaches the point where its own perpetuation and the enhancement of its power and resource utilization become primary motivators. We have long since reached that point. It seems that now our government is determined to move from the merely ridiculous to the completely absurd.
We are heading straight toward a brick wall; the entire government sector is supported by the private sector. All the promises and the fine rhetoric ignore the fact that the country simply cannot support its current government structure.

Finally (for this post), December's NFIB small business survey is enough to make a strong economist cry. In all too many cases, survey components are revisiting survey lows (most of which occurred in 2009). The first page starts out at a depressing -9 points, and from there the detail gets even more grim. I cannot force myself to write about the gory details, but I would recommend that anyone who has an optimistic outlook for the first half of 2010 should read this and absorb it. I have high respect for this survey.

I will quote from the commentary:
Owner optimism remains stuck at recession levels. The proximate cause is very weak consumer spending, better than a year ago, but that was pretty bad. Fifteen (15) percent reported gains, while 43 percent reported
weakness. With weak consumer spending, there is little need to invest in inventory (and borrow money to support inventory investment). Inventory investment plans are at historically very low levels. Similarly capital
spending is on hold, with actual outlays and planned outlays at record low levels along with the demand for loans to finance the outlays. More firms still plan on reducing employment than plan on adding to their payrolls.
But the other major concern is the level of uncertainty being created by government, the usually source of uncertainty for the economy. The “turbulence” created when Congress is in session is often debilitating, this
year being one of the worst. Themes including “tax more,” “tax the rich even more,” “VAT taxes,” higher energy costs due to Cap and Trade, mandates and taxes for health care, threats of “stimulus II,” incomprehensible deficits, and a huge pool of liquidity created by the Federal Reserve Bank that threatens price stability and higher interest rates. The list goes on and on. There is not much to look forward to here and good reason to “keep your powder dry.” Uncertainly is the enemy of the real economy as well as financial markets.

And here is a graph to show the predictive value of this survey - note that small business downturns are strongly predictive of the rest of the economy:
Click on it to make it larger.

Consumers don't have income, so small business owners don't, and that is why they are still cutting employment, wages, inventory and capital expenditure plans.

If you read this survey look at the actual price changes on the graph on page 11, and you'll see why compensation is being cut. There is less and less money circulating on the ground; we are in severe trouble.

There is less and less money circulating on the ground; we are in severe trouble.

And yet there's more and more money in circulation. It's just going into speculative assets, where it stops circulating and is (eventually) destroyed.

I've been reading a study of the hyperinflationary periods of some South American economies.

South America has a tradition of, and infrastructure for, a parallel dollar economy. During their periods of hyper-inflation, businesses would get their revenue in as quickly as possible, and sweep it the same day into foreign accounts. This ensured that the velocity of money stayed high, no matter what the underlying economy was doing--pesos or reals became a hot potato, to be passed along before they lost all value.

If I tried to conduct business this way, the IRS would eat me for lunch. (Another key difference between the US and SA. They cheat on taxes regularly.) If I had large nominal gains from foreign cash in a foreign account, I'd be better off, but my cap gains tax would go up, too. This additional tax wedge would help damp the velocity of money.

Wouldn't it be ironic if the recent crack-down on foreign-denominated accounts ended up preventing the US from inflating away its debt?
Our federal government is like a McMansion - way bigger than our actual needs and we can't afford it anymore.

But rather than downsize, we'll beg for a bailout.
Charles - anyone who is taking seriously what is happening in China should realize that their checks are going to start bouncing sooner or later. So I don't know who will be bailing us out! Dubai? It would appear they have problems of their own.

Neil - Money supply is not the same thing as circulation, just as blood volume can be high but blood vessels can be blocked anyway.

The US economy has a severe case of blocked consumer arteries.
We are going to struggle along alone for a couple of years, because our political class does not have a clue. Half of it thinks the current situation is an opportunity rather than a problem, and the other half ran out of ideas about a decade ago. :(
WSJ - the era of Fantasynomics. It's quite alarming.
Thanks MOM interesting data. I don't understand why folks are so surprised by these numbers given our trade and credit policies the past 20 years.
The tax structure needs to be totally revamped.
Tariffs and an elimination of payroll taxes would
increase employment. Much better than devaluing
the currency.
Thank you MoM I regularly visit 3 economic sites regularly,Naked Capitalism,Calculated Risk and your Blog.I always get solid Data here and a different perspective that I value highly.I am glad to hear the chief is recovering well and hope that next year provides a lot less drama.
Ronald - I don't get it either. We have a population of over 300 million to feed, clothe, house and treat. That means we need a lot of jobs. You cannot have those jobs on just a service or a financially trading economy.

It seems as if our policies have ignored the real economy in favor of the flashy bubbly froth.
very well work... It’s great to see good information being shared.

Term papers
Eliminating payroll taxes means that you mus either tax business or have a sales tax.

Taxes on business will reduce business and reduce revenues. And taxes on business are a lie; if you believe in progressive taxation (I am a skeptic) you should realize that the janitor loses at least as large a share of his salary to corporate tax as the CEO does.

Further, taxes on business drive business offshore where the workers do not pay income tax.

We should eliminate taxes on business and, for the good of personal integrity, eliminate the personal income tax as well, relying instead on a very visible sales tax on consumer sales, applying equally to domestic manufacture and imports.

We should require that the "employer's contribution" to social security be turned into visible income and then taken from the individual's paycheck so that everyone can see what is being paid.

We should favor Roth IRAs over regular IRAs and eliminate the various contribution ceilings.

We should require that municipalities, businesses, and unions fund their pensions by upfront purchase of annuities at the time of retirement, rather than committing future revenues to them. This is especially important for cities and states that are buckling under the burden of retirement payments.

Of course, we should all be trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, brave, clean and reverent. And honest, but that may be asking too much of a politician.
I really like the graph of gasoline prices. Where did you get it? I looked on the EIA website, and they have many graphs, but I did not find any as clear as the one in your post.
Charles - it is always available at the bottom of this page (scroll down or you won't see it).
Nice post. Keep it up.
Thanks for the info.
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