Dismal Headlines, Worse Realities: Retail Sales and Economic Outlook
After the break we provide a couple of excerpts from our accumulating weekly readings on the economic news - and can we just say reality is slowly creeping in. We tried to make that point with the prior post and translate the implications of a rapidly slowing economy into the earnings outlook. Since that argument didn't fly very well we'll pick it up again later and concentrate on today's headlines. Not un-representative of which would be:Retail Sales Drop for First Time in 5 Months. Or these:Economic Slide to Extend Into 2009: Blue Chip, Economy Seen Slowing More Sharply: Philly Fed.
Fortunately, or not, we consider the MSM reporting to be improving but still not quite there yet. Sadly for our market positions the markets got it right the first half of the day but schizophrenia returned in the second, as they recovered. But if Mr. Market is listening let us correct your mis-apprehensions. They are indeed out to get you and here's the proof.
As always if you'll click on a chart you'll get an enlarged version in a seperate window.
Retail Sales
The headlines have it that Retail sales dropped after an upward revision for last month, not mentioning the downward revision for May :). More interestingly our preferred YoY change was 2.9%, 5.8% x-Autos. Which sounds good until you look at the chart and realize it's downtrending. MUCH more important though is real retail sales which was -1.9%, negative for the eight month in a row and at an increasing rate. Let's zoom in and get a little more granular so you can see the more recent data.
Real Retail Zoom-In
I'm afraid the headlines and MSM reporting still hasn't absorbed the power of YoY reporting or of looking at the inflation-adjusted data but at least they're improving a little. When you get more granular, as in this chart, you can that we turned negative in Dec07. In other words when energy prices started going crazy people did the rational thing. CalculatedRisk's continued emphasis, supported by minor analysts like Marty Feldstein, that we most likely enterred a recession in then is looking better and better.
Real Sales Energy-Adjusted
Thought if you just looked at retail sales x-Autos you'd think things weren't really that bad. As a big picture sidebar observation we urge you to recall our comments from a while back that the GDP numbers and component breakdowns tell us that indeed we crossed, or are crossing the tipping point into a more serious downturn. (Tipping Points, Blindsides, Ouches: Tough Times Getting Tougher) An observation obviously NOT absorbed into the markets as yet. Where you can see this is by netting out gas station sales - a statistic you can get nowhere else since it's a painful manipulation of the data, at least so far.
When you do that it turns out real retail sales turned negative in Oct07 ! And of course that's the same month when real (estimated) gasoline sales jumped and have kept climbing. In other words real retail sales has been negative for 10 months. And the rate of decrease is increasing. Tipping points indeed. And nobody is factoring that into their pricing, valuations or business planning that we can tell. There are some very unpleasant surprises lurking in the wood work for a lot of people as the normal cyclic lags start to work themselves into view.
Just put another big picture point on it what we've seen is the air going out of the leveraged financial bubble over the last three quarters. In other words the consequences of the credit bubble bursting and destroying the Housing market and sucking out the "vital bodily fluids" from the markets. What we have not seen is the consequences of a downturn in the business cycle. But IOHO we're about to. (News Alert: Vicious Credit, Economy, Market Cycle Spotted, Markets Drivers 2 (Buyouts): the Carry to Cash Economy, Market Drivers: Liquidity, Liquidity(Buyouts) and Buyouts (Buybacks)
Economists Expect 2008's Second Half To Be Worse Than First The U.S. economy is poised for an unpleasant finish to 2008, amid a consumer-spending slowdown and a weakening global economy. The emerging pattern is the reverse of what most forecasts showed at the beginning of the year. The U.S. economy, facing a consumer-spending slowdown and a weakening global economy, is poised for an unpleasant finish to 2008. The pattern of growth that is emerging this year -- a mediocre first half followed by a weaker second half -- is the reverse of what most forecasts showed at the beginning of the year. Economists have downgraded growth forecasts in recent weeks. "We are on the cusp of a renewed deceleration in growth," Goldman Sachs economists said, noting that a contraction in consumer spending is likely over the second half of this year and that "the risk that foreign-demand weakness will wash back onto U.S. shores is clearly growing." Households are grappling with layoffs, stagnant wages, falling home values and tighter credit. The U.S. government's economic-stimulus program, which was intended to give households a boost in the middle of the year, may not have done enough to stave off recession. The payments coincided with a run-up in fuel prices, so a portion of the checks were gobbled up at the gas pump. So far, most of the money appears to have gone to savings and debt rather than to immediate spending in stores.
"The air is coming out of the balloon pretty quickly here," said Brian Bethune, a senior economist with Global Insight, a Lexington, Mass., forecasting firm. "Consumers are just throwing in the towel." Retail sales in July were weaker than expected at many chain stores, suggesting the May and June sales boost from the stimulus checks is quickly fading. Talbots Inc., Kohl's Corp. and Gap Inc. were among those retailers reporting double-digit sales declines last month. Discounters, including Wal-Mart Stores Inc. and Costco Wholesale Corp., fared better, but Wal-Mart U.S. President Eduardo Castro-Wright warned that spending could slow: "With the end of the stimulus checks, we know consumers are spending more cautiously," he said. Consumer spending is poised to weaken just as foreign growth -- a vital offset to sluggish domestic demand -- also shows signs of slowing. Surging export growth, coupled with falling demand for imports, added 2.4 percentage points to second-quarter growth in U.S. gross domestic product -- marking the largest contribution in nearly three decades. Without that contribution, GDP would have slipped 0.5%. WSJ Vidclip Review
· Economic Slump in U.S. to Worsen as Consumers Get `Squeezed' After Rebates [Kaufman Says U.S. Economy `About to Approach Recession']
· Economic Slide to Extend Into 2009: Blue Chip, Economy Seen Slowing More Sharply: Philly Fed
U.S. Retail Sales Drop as Record Gasoline, Credit Squeeze Hurt Auto Sales Sales at U.S. retailers dropped in July for the first time in five months as record gasoline prices and tighter credit reduced automobile purchases. The 0.1 percent drop followed a 0.3 percent gain the prior month that was larger than previously reported, the Commerce Department said today in Washington. Sales excluding automobiles rose 0.4 percent, less than anticipated. The sales drop came even as the Treasury distributed tax rebates as part of the government's fiscal stimulus plan. Consumer spending, which accounts for more than two-thirds of the economy, is likely to keep fading, hurt by rising unemployment, falling property values and elevated fuel costs. Retail sales excluding gasoline fell 0.2 percent, the Commerce Department said. Spending, which has grown every quarter since 1992, may stall in the last three months of this year after growing at a 0.6 percent annual pace from July to September, according to the median estimate of economists surveyed by Bloomberg from Aug. 1 to Aug. 8. Figures from Commerce on July 31 showed spending grew at a 1.5 percent pace in the second quarter. The world's largest economy will expand at an average 0.7 percent annual pace from July through December, half the gain in the first six months of the year, according to economists surveyed.