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Retail Sales & The Market's Looming "Gotcha" Moment
Submitted by Lance Roberts via STA Wealth Management,
Over the last few days, there have been numerous articles puzzling over the surprise drop in latest retail sales report.
"At first blush, the January U.S. retail sales data were disappointing. So, the early evidence confirms the Visa survey that the savings from the plunge in energy costs is being put into the cookie jar instead of being used to buy more cookies." - David Rosenberg
"U.S consumers are getting more caution about how they spend their savings from low gas prices." - Akin Oydele
Of course, the fact that retail sales did not surge is not much of a surprise for several reasons:
1) Considering that labor force participation for the key employment group aged 16-54 is near the lowest levels since the late 70's, the demand for gasoline has fallen due to fewer people driving to work. The large group of non-counted but unemployed individuals combined with increased levels of productivity due to technology remains an impediment to increased spending that is derived from production. (An individual must produce first in order to consume.)
2) Unlike an IRS tax refund which is "pre-spent" by individuals who eagerly anticipating the arrival of those dollars; when one fills up at the gas station there is no visible "refund." As Wells Fargo's Mark Vitner recently stated (via Business Insider):
"For starters there is simple arithmetic. While the typical consumer will save between $500 and $800 this year from lower gasoline prices, they do not receive a check up front. Instead, the savings accrue gradually as they fill up their tanks from week to week. On a weekly basis, the saving work out to between $10 and $15, which is meaningful for lower and middle-income households, but not enough to finance a spending spree, particularly right off the bat."
3) Lastly, as I discussed previously, since gasoline sales are a part of the retail sales calculation a reduction in dollar sales of gasoline will only lead to a redistribution, not an increase, of spending in other areas of the economy. Therefore, $10 saved at the gas pump, which reduces gasoline sales, is offset by a $10 increase elsewhere in theory. However, the net economic impact is $0 as no "additional" spending was created.
"Increased consumer spending is a function of increases in INCOME, not SAVINGS. Consumers only have a finite amount of money to spend."
Graphically, we can show this by analyzing real (inflation adjusted) gasoline prices compared to personal consumption expenditures (PCE) which comprises almost 70% of the GDP calculation.
The vertical orange line shows peaks in gasoline prices that should correspond (according to mainstream consensus) to a subsequent increase in retail sales. However, the data suggests that rising gasoline prices (which leads to higher dollar sales of gasoline, and more jobs in the energy and related businesses) is better for the economy.
However, whether or not lower gasoline prices is being saved or spent the real story is what retail sales are telling us about the overall economy. In December of 2007, I wrote in my weekly newsletter (subscribe for free e-delivery) that "we are in or about to be in the worst recession since the great depression."
While there were several economic reasons for that call at the time (consumer confidence, auto sales, and ECRI leading index all declining) one of the main reasons was the decline in retail sales. As shown in the chart below, when the 3-month average of the annual change in retail sales has declined below 2% the economy has been susceptible to a recession.
Currently, consumer confidence, auto sales, and other important economic indicators suggest that a recession is not imminent. However, the current level of retail sales is suggesting that the economic environment is significantly weaker than headlines would suggest. It also suggests that a 5.7% unemployment rate is likely not reality either.
Lastly, it is important to notice that the 3-month average of the annual change in retail sales "spiked" just prior to the onset of an economic recession.
While I am not suggesting that the economy is on the verge of an immediate recession, I am suggesting that the "conundrum" between lower gasoline prices and retail sales is not really one at all. Furthermore, the real story behind the weakness in retail sales also suggest that something is "amiss" within the broader economic backdrop. When combined with the deterioration in earnings, the risk of a "gotcha" moment in the market has risen markedly.
As always, economic data is slow to develop and are horrible measures for "timing" market turns. This is especially the case when data used today is consistently revised, modified and recalculated from one period to the next. However, the data can provide some evidence as to the overall trend of growth of underlying variables to help make better decisions about the long-term expectations of returns from underlying investments. After all, given that the financial markets should be a reflection of underlying economic activity, this only makes sense. But given the repeated interventions of global central banks over the last few years, the deviation between the markets and underlying economic activity can remain "irrational longer than would otherwise be logical."
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this recovery is Fucking GREAT!!!!!
All we care about is that Jamie's bonus is secured.
Make a bacon grease candle:
https://www.youtube.com/watch?v=5ELLSEvdPSU
Give it up Lance
Gdp could be one dollar and the Fed would make sure the Spy is at all time highs
http://www.bloomberg.com/news/videos/2015-02-17/u-s-drilling-rig-count-p...
The Loch Ness monster is more visible than the recovery.
The market's "gotcha" moment will be fed induced and on the little white haired garden gnome's schedule.
"The illusion has become the reality."
G.G.
So it's awe-some!
Don't worry just wait until Jack Yellen rips her panties off and really lets it fly! The presses will be smoking hot when the time comes!
Federal reserve sons of bitches.
Whew! Am I relieved. I was concerned that ZH would finally quit referring to our goal-seeked propaganda outlets as "markets" during my trip home from work.
Markets.
RE
Yes, but there are other societal factors here:
A) Cars, especailly good cars, have inflated in price. Wages have stagnated, while private debt has increased. This is why sub-prime is now booming for car sales. Also, the younger generation 18-34, prefers public and mass transit (and it also happens to be the most indebted generation - what a coincidence!). Sidenote: I've never owned a car and don't have a wrinkle on my face. Stress-free living, baby.
B) The variance of the price of gas has been WILD; great for consumers lately, but let's not forget back from 2009-2012, motherfuckers were paying $4-$6 for gas on the regular. We saw 10€-17 € petrol in France and rural UK during the Cyprus fiasco. The petro dollar is the most independent of any commodity based asset class; it can be manipulated but it can, and will, not give a fuck if shit goes really rotten. $10 gas could happen at any time, even from the bottom of $2 (even lower in some places now! in winter!) today. In a sense, the cost of gas now makes you wonder if CBs can keep up the manipulation with all of the other wild areas of inflation going on (rent, food, healthcare).Yes cars have inflated in price as well as used cars. The rule is average used car price is $20,000, $40,000 new.. AND repairs are very expensive. In the NYC or Boston area you will be paying alot to replace suspension parts, tire & rims since the roads suck plus salt eats away at cars. 100,000 is still the rule. Most cars work well until around 100,000 miles, then cost of repairs becomes prohibitive, better to trade in and use for down payment for new car
There have already been a ton of gotcha moments yet we are near all time highs and the only reason is because of Central Bank manipulation. When it ends, it will end badly.
Let's see....spent $28.00, online, for right side mirror for 98 Accord that we bought from mom-in-law. She is 87 and driving was not her strong suit. She smacked something and knocked off the mirror and scraped the left side. Front bumpers are scuffed too! But she kept the car up mechanically. She wanted to give it to our son, her grandson, but he is too smart to own a car as he travels quite well without one. And he spends much time in Hong Kong with his wife...told him to watch out for fake food, ala, McDonalds, etc. Ha-ha.
Bought some Beck CDs, online, after hearing about what's his face being an ass again.
Bought more protein powder, online. We make our meals at home and have some raised garden beds. Chickens too.
Looking at some silver rounds styles I don't have now. Like year of the sheeple.
Sorry I didn't shop more. Can't wait until March when it revealed that the super cold kept folks home...fucking no doubt. Have they taxed THAT yet?
Death to corporate fascist banksters. Know any?
You sound like a home grown terrorist. You either spend more money, or you're against us.
Gas was $3.65 in August. Gas fell to $2.39 in October and stayed in a $2.25-$2.40 range until the second week of January when it fell to the low price of $2.07. That was short lived as of two weeks later the price was back to $2.29 and now $2.39.
So you save $15 on a fill up, however ground beef is nearly $1 more per pound as well as everything else. The increased tax rates, massive insurance premium jumps, and other forms of inflation offset the $15 gasoline savings and then some.
If you have kids you are paying more for lesser quality toys. A transformer that was $10 last year is now $14.99. The plastic is lower quality and there is less articulation. Two years ago Star Wars figures were cheapened to the point of making them worthless. However you could pay $10 to get the same quality figure you used to get for $5.99.
Much is made about getting faster, higher resolution tablets and phones for the same money. The problem is the added resolution has no benefit and the quality of programming is getting worse, leading to processing waste. The increased power gets you the same performance as the old model. The old model is obsolete not because of any real need for a new device, but because the old device can no longer process the added garbage code.
A windows xp machine could run internet video, the full Adobe Suite, and CAD programs easily with only 2gb of RAM. A windows 8 machine requires 2GB RAM just to run the OS. A machine loaded with 8GB will be using almost 5GB just idling. That isn't progress. Data mining cookie spam slows most web browsing to a crawl and has increased the processing and memory required to access the internet nearly ten fold in just a few years. So you are forced to upgrade, just to keep up with waste.
My theory is that Confidence survegs are being biased by age. Old people lije to talk so they are more likely to answer a phone survey and not hang up. Plus they have landlines versus mobile so they show up on listings. And since geezers are getting the jobs...thoughts?
Other people have suggested this on ZH and i think it makes sense.
Next week your chocolate ration increases from 6 to 4 ounces! All hail the Great Recovery!
The only reason that we did not have recession in the late 90's was due to the y2k spending which had to occur regardless of the economy.
Corelates beter to the increased use of computers than anything else.. CPU tax is a coming...
From "The New Economy" to "The New Con-me."
I don't understand how today's GDP is higher than it was in 2004-2007. I can remember 10 years back . . .
Consumers were going crazy. Hordes of credit-crazed consumers were "climbing the property ladder," selling their old place for huge sums and buying even more opulent digs. Those that weren't selling were doing cash-out refinancing or Home Equity Lines Of Credit. The spending was unreal! Everyone was buying cell phones, flat screen TVs, iPods, motorcycles, ATVs, jet skis, motorhomes, cars & trucks, koi ponds, granite kitchen countertops, and trendy clothing. Housing and retail construction was crazy - Beigevilles going up in every cornfield and new strip malls all over Hell selling chrome rims, tanning sessions, cell phones, no end of crap.
That's all over. Yet now, in 2015, consumer spending is still 70% of GDP and GDP is higher than ever? It's almost as if someone's fudging the data.
itstippy:
Two words for you: govt spending.
The corollary to the oft-used statement that if moneyprinting made nations rich then Zimbabwe and Germany would be the richest natiuons in the world today is the following:
If GDP was a true measure of an economy's health, since GDP includes government spending, then by shutting down the entire private sector of that economy leaving only gov't spending, and then by boosting gov't spending by printing money, any country could make GDP grow as much as it wants.
That country should then be able to prosper according to the definition of GDP and the calculation used for GDP.
Except that would never happen. Can any country prosper without a private sector?
Well stated.
Well said cycle, phonetically sounds great, but visually, looks bad. There is a lesson here.
$10/week gas savings will really light a fire. Where
is the nearest yacht distributor?
$10/week = $520pa = new loan of $10k @ 5.2% = trip to Disneyland for the whole family.
The average stock holder doesn't delve into why the market is higher they are happy that it is higher. That's why they are the last to sell. Looks to me that we are approaching a top as the buying is not of good quality and the divergence between the market and the economy is widening. Central Bank is on hold as they have a balance sheet of assets they have never held before. Until we get our national debt under control market I feel is going to be very fragile!
Mass transit sucks balls.. Hardly ever use it... In Boston just drive to the nearest T station and park in the stop & shop lot or on street where they won't ticket. In NYC when I need to visit, either park in lot or on street. Seriously, spending 2 hours a day traveling from one boro to another in NYC is insanity... Spend $50 or whatever and park in a lot for the day. In the Boston area, the T is running at 1/2 service for the next 30 days and this is the main story, seriously the 'main stories' in the Boston area are things like the Manager of the T resigning and 'The hole in the ground that was Filenes finally going up'.. So unlike NYC
Mass transit sucks balls.. Hardly ever use it... In Boston just drive to the nearest T station and park in the stop & shop lot or on street where they won't ticket. In NYC when I need to visit, either park in lot or on street. Seriously, spending 2 hours a day traveling from one boro to another in NYC is insanity... Spend $50 or whatever and park in a lot for the day. In the Boston area, the T is running at 1/2 service for the next 30 days and this is the main story, seriously the 'main stories' in the Boston area are things like the Manager of the T resigning and 'The hole in the ground that was Filenes finally going up'.. So unlike NYC
there is also the higher cost of rent, groceries, insurance, utilties (national grid just raised rates substantially and with the explanation 'will be offset by lower gas prices people are paying'... Taxes in Massachusetts may be high but nothing like taxes & insurance you will be paying in NYC (where buying a house is impossible and not even a thought if you are making anything less than $100,000 a year)
Just wait until those folks anticipating a tax refund have it confiscated by the IRS to pay their obama care fee.