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Retail Sales Slow As Shopping Season Heats Up
Submitted by Lance Roberts of STA Wealth Management,
While the specter of the debt ceiling debate continues to haunt the halls of Washington D.C. it is the state of retail sales that investors should be potentially focusing on. While the latest retail sales figures from the Bureau of Economic Analysis are unavailable due to the government shutdown; we can look at other data sources to derive the trend and direction of consuming spending as we head into the beginning of the biggest shopping periods of the year - Halloween, Thanks Giving (Black Friday) and Christmas.
I wanted to first turn to the ICSC-Goldman Sachs retail sales report. This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. Since this is a weekly measure the raw data makes for a quite noisy chart therefore I have smoothed the data using a 3-month average of the annual rate of change to reveal the underlying trend as shown in the chart below.
As I have discussed in the past - economic strength appears to have peaked in early 2011. Since personal consumption expenditures makes up a little more than 68% of the current GDP calculation the weakening trend is retail consumption is the real culprit behind the sluggish economic growth.
However, since individuals can only consume with discretionary income, we can easily measure that capability by looking at the annual change in wages and salaries as compared to the ICSC retail survey. The wages and data salary is only available through August due to the government shutdown so the ICSC data implies that wages and salaries have weakened over the past month somewhat.
Lastly, I compared the ICSC survey with Gallup's weekly U.S. Consumer Spending survey. Again, in order to smooth very volatile weekly data and get a comparative basis, I have used a 3-month moving average of the annual rate of change.
Notice that the two data are normally quite highly correlated with one another except for the rather abnormal surge in Gallup's weekly survey at the beginning of 2013 even as the economy wrestled with the "fiscal cliff" debate. This surge can be attributed to the surge in incomes that occurred at the end of 2012 as companies rushed to pay out bonuses and dividends prior to the fear of increased tax rates.
However, after that brief anomaly, these trends have returned back towards a more normal correlation. The recent weakness in both surveys suggest that we may see a decline in the government retail sales and personal consumption data when they are eventually released as well.
What we are seeing in these weekly surveys have also shown up in some of the reported economic data as of late. Even the now "bullish" David Rosenberg noted in his daily missive:
"Even with the recent relief we have seen from lower mortgage rates and gasoline prices, the latest batch of economic news has been on the soft side. And that is a bit of an understatement.
U.S. auto sales in September fell to a five-month low (+2.3 YoY versus estimates closer to +3.3%). You know things can't be too good when America's youth stops buying denim jeans - the big downside surprise last week was the news that same store sales at GAP fell 3% last month. Sagging mortgage revenues [due to higher interest rates] at Wells Fargo and JPM (originations down 42% and 14% respectively from a year ago - don't think that didn't catch the eyes of the Federal Reserve as policymakers are focused sharply on the housing market) undercut their latest quarterly results.
And it's not just the coincident economic indicators that have sputtered but there is now evidence of some fraying at the edges in some of the leading barometers - like the ECRI index which fell 1.7 points in the October 4th week to 130.4 which is down to mid-July levels...The economy sub-index of the Bloomberg Consumer Comfort Index also ticked down last week to its lowest level since March.
And it isn't just the vagaries of the business cycle at play, but the negative supply-side dynamics that are holding the U.S. economy back."
The recent downturns in consumer confidence and spending are likely being exacerbated by the controversy in Washington; but it is clear that the consumer was already feeling the pressure of the surge in interest rates, higher energy and food costs and stagnant wages. With the debates in Washington continuing to drag on it is likely that we will see more economic suppression in the months ahead. However, as we have repeatedly warned in the past, the level of economic strength isn't sufficient enough to withstand the impact of a significant exogenous event - I specially stated back in January of this year:
"As stated above there is very little 'wiggle room' for the economy at this point to absorb much of a shock. With real final sales plugging along at 1.9% and the output gap above 6% the slack in the economy is huge. As a reminder these numbers are generally levels more associated with recessions and not four years into a recovery.
Of course, the fact the economy can run at such subpar growth rates without technically being in a recession is a function of the 'new normal' of an economy supported by trillions of dollars of stimulus. This also goes a long way to support the idea that recent claims that the economy is on the verge of an acceleration in growth are likely based more on 'hope' than 'reality.' The economy will likely continue to "muddle along" only as long as the Federal Reserve continues to support it by artificially suppressing interest rates and flooding the system with liquidity."
As I have warned in the past - these divergences do not last forever and tend to end very badly. Of course, therein lies the ever present problem. It is one thing to understand and quantify the risk that exist but the timing of "the call" is something else entirely. As Howard Marks once stated; "Being early, even if you are right, is the same as being wrong."
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Raise min wage to 20/hr and ppl may start shopping at jcp again.
Just get rid of Obozocare so ppl can get full time jobs again.
"Just get rid of Obozocare so ppl can get full time jobs again."
While I agree with getting rid of Obozocare in principle......look at the chart again. Peak Retails Sales and Peak Income happened between 1998 and 2001 with declines of both starting in that time period. The Clinton and Bush era.
Obozocare will just accelerate the inevitable decline and fall of the American workforce, type of work, and consumer culture.
Which actually may not be a bad thing after all.
Yes. Must get rid of consumer society and replace with productive society.
Boy am I getting sick of hearing so-called educated people braying about all of their 'under-the-bed-monster" nightmares about how bad "Obamacare" is.
Well, sniveling dolts, the health care bill was written by lobbyists and healthcare insiders and is a huge giveaway to the paying constituents of the political parties.
What the hell are you crying about? Obama just signed the damn thing and I'll bet not ONE of them read it or even reviewed it. Isn't that just what you dominant crazy turds want?
I saw screw you hostage taking nitwits. They used to tar and feather the like of you. Too bad times have changed so much.
I too vow to do anything I can do to defeat the kind of ignorant, racist, bible thumpin stupidity you slugs represent and that picture of that Teahadist with the rebel flag and the USMC flag was most appropriately called "trailer trash" and boy does the description perfectly fit. Just tune in to the Jerry Springer show Rethuglians and there is your base!
How fucking sad.....but this is Amerkia after all.
Americans are better than this and real patriots would support the continuation of our system of laws and governance and shun and outlaw these terrorists who would speak terrorism as patriotic. Pieces of shit!
Is this an MDB sock puppet?
I thought non-essential govt employees were furloughed.
I guess trolls are esential to this economy.
I think most workers were recalled by now.
Raise min wage to 20/hr
That would be great....if we still had 40 hour jobs. One hour at twenty bucks ain't gonna cut it!
Retail is in panic mode. Halkloween pumpkins and witches are out ... nest to Thanksgiving Turkeys ... next to XMas trees and dingly dangly ornaments.
They've already thrown every thing out there hoping to beat the other stores for those few precious consumer dollars.
If they start showing Easter stuff this early, I'll get real worried!
That would be what the doctor ordered (since 90% of us are in ad hoc or broke).
But then the corporations and the Fed would have to admit inflation. That's the main reason why they don't raise the minwage.
> Raise min wage to 20/hr and ppl may start shopping at jcp again.
You'd still have to work almost half a day just for a pair of cheap foreign-made pants.
Nop, sorry, won't do a thing to unemployment.
The age of robots has arrived.
What we need is change of the system that takes into account that overproduction can be achieved with only 20% of the workforce.
As of it, that system already exists but profits only the 0,008% of the people.
We could live more comfortable with less work and higher pay to at least the 2000 levels.
One day it will happen but it first get pitchblack before the sun comes up.
A monstor war... a billion deaths... and the luck that the scale of power tips to the people's side.
The superrich want to feel more rich and when you already have everything, the only way to feel richer is when the rest is poorer.
I work for a company that wants it's profits to rise by 20% a year and we're getting there. The people don't really get raises. Sometimes a handout but not a real raise.
The only ones who profit are the owners. And in the process we work harder every year.
And from time to time... some moron comes up with a idea like to cut our pension plans and such. We still have our unions to thank for their political powers so this doesn't happen.
But why do we need savings when we keep on making profits year after year? We're already a global leader. Our bosses are filthy rich already. Why doesn't the working guy get a break?
I agree with part of your post, but not all of it. I think if US companies were to bring back production of goods to the US and actually hired Ameircan workers it would be a huge step in the right direction. Yes, the cost of everything would go up, but so would wages. There may be some suffering before it gets better and the middle class is able to get back on its feet, but it would be worth it to produce products here.
"I work for a company that wants it's profits to rise by 20% a year and we're getting there. The people don't really get raises. Sometimes a handout but not a real raise.
The only ones who profit are the owners. And in the process we work harder every year.
And from time to time... some moron comes up with a idea like to cut our pension plans and such. We still have our unions to thank for their political powers so this doesn't happen.
But why do we need savings when we keep on making profits year after year? We're already a global leader. Our bosses are filthy rich already. Why doesn't the working guy get a break?"
_____________________________________________________________________________________________________________________________________________________________
The answer is because they can work you like a dog with no pay raises while cutting benefits if they wanted to. If you won't do the job for their price, they can go to the 25% of un/underemployed people in the US, the PIIGS in the EZ, Asia, etc. Your union will most likely only save you for a limited amount of time. What is needed is a cultural change.
Only the end of globalization would allow this to be possible and protectionisme all over the world. And that would cause wars.
Agreed, but it is what is needed, IMHO. We can still trade with countries that will be fair in their trade standards, but production needs to come back to the countries where the corporation is based.
HELL YEAH!
I WISH I COULD UP YOU 1000 TIMES!
And those who don't adopt our labor laws TAX'M UNTILL THE PRICE IS RIGHT SO COMPETITION IN OUR COUNTRIES CAN FOLLOW!
Rockerfeller when asked the secret of his success replied;
"I always sold too early".
It is true, let it be said.
I anticipate that FUTURE earnings will be quite delicious so I refuse to sell any stake that I have acquired in any publicly traded corporation because I know that the future will be brilliant.
Over.
just blame bush and print
Obama has just printed more than Bush......and every single President before him all they way back to Washington.
....and he's going for more.
Retail sales will ultimately go to "ZERO".
No Virginia, there isn't any Santa Claus - there's just Ben.
goverment workers must go out there and max out all their credit cards, what are they terrorists?
Hahahahaha! Looks like we are in the same spot from 09-14 as from 04-09. Look out below! Better start firing up the layaway commercials and up the credit card offers.
hmmm
"Obozocare will just accelerate the inevitable decline and fall of the American workforce, type of work, and consumer culture.
Which actually may not be a bad thing after all."
circus only works on full bellies-the sword of Allah is the hungry bellies of the poor..lincoln ahh oh I mean obuma will save the USSA over american dead - HSA ammo depots are full.
Title modification: EBT Retail Sales Slow As Debt Ceiling Negotiation’s Stall.
/sarc
When it comes to JCP, it is disposition time.
The only things selling well are: guns, ammo, lotto scratch off tickets, Grand Theft Auto V and Duck Dynasty T-Shirts.
At least some decent supplies of ammo are starting to show up. Did notice some serious price increases on the popular firearms....and bacon!
Especially on long rifles, fuck me!
Yes you, Mark L. You can charge .gov those prices but for fucks sake, can't you offer a coupon or some such discount for the little people?
Over.
Must be the weather....err I mean govt shutdown. Oh wait 2 things to blame now... CNBC/ MSNBC must be giddy with possibilities.
I have a conceptual problem with the part that read "the weakening trend is retail consumption is the real culprit behind the sluggish economic growth". Said weakening trend may be indicative, but is it causative? Seems like a case of which came first, the productivity (as reflected in wages/salary) or the consumption. To test the author's statement, I urge Congress to immediately double the amount of money given monthly to Social Security recipients, SNAP, etc. (Disclaimer - I'd benefit from the SS increase.) Consumption would undoubtedly increase, but would the economy truly experience a net benefit? With relatively few consumer goods being produced in this country, the retail sector might benefit but would the production sector, the place where people create real things, benefit?
I'll be looking for that SS increase come January 1. (Gotta get what I can before the death panels kick in!)