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Tuesday, February 15, 2011

US Retail Sales, Jan

Not the greatest report in the world.

The YoY aggregate numbers are still great, but remember these are not adjusted for inflation. The month-over-month is not so good. December's revised numbers are +0.5 from November, and January's preliminary is +0.3 from December. That will be revised, however, and truthfully this report's error bars are higher than that 0.3. So we don't know. It could really be a much healthier 0.5 or it could be zero or it could, theoretically, be negative although I don't think so, given pricing trends.

What should give us all pause is the segmentation in the categories (see Table 2)
Autos: +15.7 YoY, +0.5 MoM.
In the highly discretionary categories for January, we racked up the following string of negatives:
That's not a particularly good score. In the highly necessary categories:
I am expecting the positive auto trend to keep going, because after sales have been suppressed for years, there is built-up demand. This moves autos to a highly necessary category for more households.

Overall, I am not too happy with the spending pattern that has been developing over the last few months. It seems to indicate that we are seeing 2007-like changes in buying patterns. I am expecting this to get a bit worse before it gets better because of increasing losses of unemployment benefits and inflation.

This winter has been cold for many and is causing high heating costs for many. Although the weather in January was generally unfavorable for shopping in northern areas of high population density, the same was true of last January. On a YoY basis, electronics and appliances store sales dropped 0.3.

Over the course of the last year, retail sales rebounded hugely. It's doubtful that we will see the same trend this year. As long as auto sales can hold out, the economy shouldn't re-contract. It's too big a vector.

I don't know, I looked at this and it gave me the willies. I wasn't too disturbed by December's performance, because a lot of people DID do considerable holiday shopping early. There is more inflation for basics that must emerge in the next few months.

The unknown variable is barter and the gray economy. By this stage a lot of people should have worked out sources of income and exchange that aren't showing up in official stats.

UK inflation went to 4% in January. Germany only went to 2%, which isn't bad. European inflation was at 2.4%. We're just about to get US January numbers, but the 2010 final was 1.5%, 1.7% for CPI-W (lower income). Rural is much higher, and the less income you have the higher it is. Currently, many northern lower-income households are seeing YoY inflation rates on the order of 7-9%.

Through December, real retail sales had risen greatly in 2010 (see St. Louis Fed Fred). I don't think this trajectory will continue through 2011:


We are, of course, still off the pre-recession peak. It would take over a year of pure stagnation to pull us into another slow contraction.

If I am right about auto sales, we won't see stagnation this year.

Assuming the Fed doesn't get inflation under control by the end of 2011, believe it or not, I have the most likely scenario being for us to go back into recession right about the end of third quarter in 2012 (Thanks, Brian).

Remember, my dating on these things always looks early, so most sources wouldn't admit it until about the end of spring of 2013. With any luck, it will be a short one caused by inventory and lasting from about 7-9 months.

What produces this are current car sales, the Bernanke attempt to defy the economy law of gravity, and the rather witless tax deal worked out last December, which shoves a lot of tax rebates right into the top segment of the population. And they'll spend it, which will reinforce the inflation cycle. In the meantime, incomes will be eroding from the bottom up.

Then when the payroll tax goes back up in 2012, we'll wind up with a short-cycle effect.

That's highly preliminary, though.

I am unhappy about the continuing high demand for six month treasuries. The one month I can see, the three month is high, but coverage of 4.72 on the six month is not forecasting a very strong investment cycle in 2011! No matter how much I try to convince myself that this is partly due to retraction from longer money to shorter money, I'm just not comfortable with this.

I look at commercial paper for non-financials and I don't get the warm fuzzies:

Yeah, it has to do with the inventory cycle, but still.

There was a big January pay down on revolving consumer (non-RE) debt at banks in January. That's a seasonally adjusted drop of 13.4 billion dollars or 26.8% annualized (don't worry, that won't continue). So people charged some and paid off more. Banks hold close to 3/4s of revolving consumer debt, so that sudden change in January revolving consumer credit people were talking about wasn't a change at all - higher-enders charged holiday purchases and then paid them right off in January.

The inexorable rise in Other deposits paused in December and then resumed in January. It looks like home sales got a boost at the end of the year due to large drops in Large Time Deposits, but that has ended. I'm guessing a lot of this was from people like Ron pulling money to bail out the kids or provide a large enough downpayment to qualify for a lower rate.

PS: The Manufacturing and Trade Inventories and Sales report for December is out. There's a table that aligns well with the retail sales report. Nothing remarkable.

Comments:
I think you mean Q3 2012 recession.

Can you expand on what you mean by 2007-like buying patterns?
 
Brian - thanks, I fixed it.

The shift from discretionary to necessaries indicates an unfavorable income trend.

The wild card is what we don't know about real incomes (some theories of the GD have a much higher rate of real economic activity for part of that time than officially reported, due to barter arrangements), but part of that uncertainty vanishes when you look at what people are actually buying.

The other effect here is one that would tend to indicate that a new downturn can't happen, because most of the fat has already been pared. It's much harder for companies to cut jobs now.

Still, with every year that passes that becomes less true.
 
MOM,

"Restaurants & Bars: -0.7"

"I don't know, I looked at this and it gave me the willies."

Eating Out vs. Eating at Home v.4
 
M_O_M

Companies still have plenty room to fire. One Fortune 500 I know laid off people in the IT section in November to be effective in March. They just "passed around the hat" looking for more expense cuts. When it gets real tough, they fire here in USA and offshore to India for half price.

I haven't given my employees a raise in 3 years. I have been hoping one would quit because I could upgrade the quality of employee for less money. I won't fire one because my Unemployment rate would go up a factor of 10. If only they wouldn't let a customer stand and wait for the employee to finish a cigarette before helping the customer.

Remember that the big increase in gasoline sales is money that goes straight to the middle east (or Canada) and is not recycled here.

Your posts on the Hospital Insurance receipts have been dead on my feel for the economy. Jobs are being created but the pie is not increasing. Keep of the great work.

Anon2
 
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