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Tuesday, January 15, 2008

Retail Sales - Where $$ Went

Table 1B Dec + Nov Total 2007 Total 2006 %IncreaseYoY Trend YoY

Total Retail & Food 819918 783095 4.70% 4.20%

Autos & Parts 140061 139335 0.52% 2.60%
Auto Dealer Only 128048 127615 0.34% 2.60%

Food & Beverage Stores ** 102992 97447 5.69% 5.70%
Grocery Stores Only 90053 85065 5.86% 5.50%

Gas ** 74327 61063 21.72% 6.00%

Health&Personal Care Stores 41662 40310 3.35% 5.70%

Clothing 52406 51235 2.29% 4.80%

Food Svcs & Bars ** 74784 72243 3.52% 5.20%

** Gas & Food Categories 252103 230753 9.25%
Gas & Food % of Total 30.75% 29.47%

The above figures come from the Table 1B of the Advance Retail Sales report. The problem is that food and gas are eating up more income. The relative trend sales for other categories were achieved with massive sales, so retail profits are suffering.

For what it's worth, Daily Treasury statements show fiscal year to date 2007 WIET (withheld income & employment taxes) and fiscal year to date 2008 WIET as of Jan 11th in both years to be 491,638 and 523,797 respectively, for an increase of 6.5%. Given inflation in other categories (and deflation in SS), this matches well with the trend overall increase. However, the YoY trends in employment tax receipts are falling, so the expectations for retailers in 2008 are somewhat grim.

Recent WIET:
Jan to date:
2007: 73,650
2008: 68,895
Dec total:
2007: 156,958
2008: 173,824
Nov total:
2007: 129,945
2008: 136,235
Period total:
2007: 360553
2008: 378954 +5.10%
Note that the years listed above are fiscal years. These figures show a pretty rapid drop in the rate of YoY increase. This summer YoY trend was running around 7% YoY increase. If I remember correctly in the spring it was somewhere around 8%?

WIET lags. FUT (federal unemployment tax) leads. FUT is sharply negative YoY so the expectation is that WIET will continue trend down in a YoY comparison. You can find Treasury Daily Statements here.

The fact that FUT is so negative YoY indicates that the real number of jobs is probably declining.

I bring the Treasury data up because someone sent me a very delusional recent piece of commentary from some bank financial analysts who should, quite frankly, have known better. They were basically claiming the opposite of what the data actually shows.

What I'm doing, if anyone cares, is trying to figure out the relative strength of the housing and inflation inputs to the general economy. Both are, at this point, negative inputs. However the forecast for housing really depends on the general economic forecast. Housing will not improve this year at all, but the question is how much it will degrade.

This is a chicken and egg problem, and the reason for the periods of silence on this blog is that I am crunching numbers like a fiend possessed. One thing I am sure of - the federal employment numbers, and hence income, and hence GDP for the last six months will be substantially revised downwards. But that process won't be finished until 2009-2010!

People (even analysts who work for banks) mostly do not understand how unreliable much of the economic data can be in trend turns. There are a lot of extrapolations and interpolations involved.

Calculated Risk, however, does understand the limits of current data. The newsletter only costs $60 annually, and is a good buy. I hope he and Tanta expand it.


What do you use for inflation? With all the headline numbers dependent upon being able to parse out real growth and price changes from inflation, a valid estimate is necessary but I have not been able to find one I can trust (John William's number at Shadowstats.com seems high but maybe not). An example is the 4.9% GDP growth last summer that was touted by Kudlow and the like but used a 0.8% deflator which was the lowest adjustment since "I like Ike". Perhaps the producer prices are less manipulated.

Do you have an alternative (I am lazy and just add 2% to official inflation).

Jim - I figure my own base prices, and then I just ask different people in different areas of the country I know for their two-year prices. That's to estimate spending power.

I don't think one can construct a valid CPI for the entire population at one go. The difference in income levels is too great.

Splitting it into low renter/high renter/low homeowner/high homeowner is viable for smaller areas, but even that doesn't work nationwide.

No one I have asked actually seems to have experienced a CPI as low as the government's in the last few years, however.

Now you can make that work out if you take a median homeborrower in a high urban area with an option ARM loan and use their payment, but that's the only way.

On average over the last few years, most families have seen a 7-8% annual increase in living expenses (including RE taxes and medical).

Not this year, though. From what I see, the recession is dampening it.
I just found this in an article from Yahoo Finance:
"When consumers are beaten over the head about how bad things are, pretty soon they believe it and that effects their spending habits," said Scott Wren, equity strategist for A.G. Edwards & Sons. "And when there's a lot of uncertainty out there, the Fed needs to be a little more aggressive — I think they need to cut more than just at this next meeting."

So stop beating us over the head already!! I guess I can ignore how little I got for that $93 at the grocery store today ;)
I keep seeing the same sort of articles. I've come to the conclusion that the people being interviewed are in the business of selling consulting services to retail, and thus have a vested interest in the "psychological" explanation.

Otherwise, they're just idiots.
Teri mentioning how little she gets for $93 at the grocery store reminds me of my own situation. I am retired and do the shopping for my wife and myself. I buy about the same groceries each trip (a little food and a lot of wine - we are old farts) and last year the bill was always in the $70s range whereas this year the same basket is in the $90s range. And don't mention taxes and insurance and gas and so on and on.

I estimate my own inflation to be about 7% YoY. Apply 7% as a deflator for GDP, real house price decline and other measures of the economy and we are already in a significant recession. "Official" stats will never admit reality of course.

You're right, Jim. The official stats won't show the reality. Your "CPI" is very similar to my calculations.

The government CPI is pretty much designed to understate reality. It was proposed as a way to limit spending on retirement benefits, and that's what it does. I'm not sure that anyone ever grasped the macroeconomic effects of having such a large proportion of our population with declining incomes, though.

However it's worth noting that the last 12 month CPI was 4.3%, so it is getting closer.

All of this does point out the wacky humor involved in the psychological explanation for the consumer spending slowdown. When everyone keeps dumping more on the basics, of course they will be spending less in the department stores. If consumer psychology were a problem, spending on discretionary items would have pulled back much more than it has already, because consumers were still runnning up their credit cards in late fall of 2007.
Is anyone tracking car insurance and the increase of folks driving without insurance? Of all the things I have to spend money on, I resent this one the most. I've had no tickets or claims against my account. I've been with Farmers for years. The only change is that I'm down to insuring just the car since I can't afford to use the truck. For that change, they increased my premiums $50 every six months. It's about a 30% increase. At some point, people just aren't going to be able to spend that much money on something that they get absolutely no benefit from having.
Teri - it's impossible to get national figures for this. Many states require insurance companies to report dropped coverage, but there are also usually ways around it.

What I usually do is look at a couple of the major auto insurers. In 2007, most of the large ones had problems. It comes generally in two forms. Some don't insure at all, and some others cut to the legal minimum.

My auto insurance is Allstate, and they are frantically looking for ways to get more from their customers. They were calling every week to try to get me to subscribe to their road service plan, etc.

My favorite was when they came up with this program in which. I would pay more for my insurance now, but if I had an accident I would not lose my good driver premium. The extra premium now is very close to the increase in premium I would get if I were in an accident! Obviously you would have to be very stupid to fall for this.
Home owner insurance is also on the rise - especially on the coast (I live about 1 1/2 miles from the ocean) as the NC Insurance Commission approved a 25% increase last year (admitedly the first in several years). This probably adds up to hundreds of millions of dollars for all the properties in the coastal plains of NC - dollars taken out of the local communities.

Death by a 1000 cuts is still dead.

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