Another Headline Head Fake - The Consumer Can't Save The U.S. Economy

Tyler Durden's picture

Submitted by David Stockman via Contra Corner blog,

After a week in which all the big retailers—Macy’s, Kohl’s, Nordstrom’s, Gap, JC Penney, Dillard’s——reported exceedingly downbeat results for their April quarter, it is not surprising that the Census Bureau’s statistical fabrication mill reported robust April retail sales. Likewise, you could count on the financial press to trot out the superlatives, as in the case of the Reuters’ headline proclaiming, “U.S. retail sales rise strongly, boost economic outlook”:

U.S. retail sales in April recorded their biggest increase in a year as Americans stepped up purchases of automobiles and a range of other goods, suggesting the economy was regaining momentum after growth almost stalled in the first quarter…….”The retail sales report shows that recent claims of the demise of the U.S. consumer have been greatly exaggerated,” said Steve Murphy, a U.S. economist at Capital Economics in Toronto.

Not exactly. Retail sales of $450.89 billion in April were down 2% from $460.1 billion in March.

Yes, April has one fewer day than March so there is a matter of seasonal adjustment. But that’s where the shenanigans start.

The Census Bureau reported seasonally adjusted April sales of $453.44 billion, up by a headline catching 1.3% from March.

But then again, based on the seasonal adjustment factor used in 2011, the SA number would have been $450.35 billion, up only 0.6%; and had the 2014 seasonal adjustment factor been used, headline sales would have been $452.6 billion, representing an in-between gain of 1.0%.

Then we also have Easter falling in April during both of the latter two years versus March 27th this time; and in all years there were April showers, too, normal or not!

For crying out loud, seasonally-maladjusted, weather-whacked single month deltas from the rickety government statistical mills are only one step removed from noise. But they are seized upon by the financial press because the latter are exceedingly lazy and always on the prowl for anything that might be “good news” for the stock averages.

But that’s what Bubble Finance has come to. Namely, a cult of the daily stock market that is so myopic, superficial and sycophantic that it has practically reduced financial journalism to noise, as well.

To be sure, there is plenty of information in the Census Bureau on-line data base that shows in an instant that the vaunted American consumer is running out of steam. As will be documented further below, there is not a snowball’s chance that the debt besotted consumer can save the US economy from the demise that lies ahead.

Even as to the near-term, in a nearby post Jeff Snider put the lie to the headline noise with charts that provide historical and cyclical context.The 2.9% year-over-year non-seasonally adjusted gain in April was obviously nothing to write home about and was among the lowest monthly gains outside of recession during this century.

In fact, the April retail sales report brought even more evidence of continued deceleration from the 4-6% annual gains recorded earlier in the recovery. It is reminiscent of the pre-recession patterns of the past, not a signal that the consumer has spung back to life.

ABOOK May 2016 Retail Sales Total

Even these sharply weakening trends overstate the case. The above figures include auto sales, which have rebounded under the tailwind of soaring auto lease and loan finance. In fact, practically any consumer who can fog a rearview mirror has gotten a car loan, but that is not a good thing; it’s a booby-trap as explained below which will boomerang in the years ahead.

Meanwhile, yeaterday’s Census Bureau release provided unmistakable evidence of an exhausted consumer that the media cheerleaders missed altogether.

Thus, between April 2010 and April 2014 when households were recovering their sea legs after the trauma of the financial crash and Great Recession, ex-auto retail sales grew at a 4.1% rate in nominal terms, and 2.1% adjusted for the CPI.

By contrast, during the last 24 months, non-auto sales have barely crawled higher, rising from $343.3 billion in April 2014 to $355.0 billion in April 2016. That’s less than a 1.7% annual rate.

Moreover, even if you credit the BLS’ comically understated CPI, it is evident that inflation adjusted sales outside of autos are now rising at barely a 1.0% annual rate.

It would take less than five minutes to spot that dramatic slowdown by scrolling through the Census Bureau data. Apparently, the algos which scanned the April release and posted the stories didn’t have the milliseconds to spare.

Likewise, it wouldn’t take long to see that even auto sales have shifted to a distinctly lower gear. April NSA auto sales were up just 3% on a y/y basis compared to annual gains of 10% to 15% early during the recovery, and from the exceedingly deep cyclical hole that accompanied the GM/Chrysler bankruptcies in 2008-2009.

ABOOK May 2016 Retail Sales Autos

Actually, the robust upturn of auto sales since 2010 has been a mixed blessing, to say the least. It has been induced by a spectacular explosion of auto loans and leases.

To wit, since July 2010 motor vehicle sales reported in the monthly retail sales data have risen at a $354 billion annualized rate. At the same time, auto loans outstanding have increased from $699 billion to $1.052 trillion. The arithmetic gain in auto debt thus happens to be $353 billion.

That’s right. Exactly 99.72% of the gain in sales was funded by more debt. And during the last year it has gone off the deep end; auto loans have grown by $54 billion while annualized sales have climbed by only $28 billion.

Needless to say, payback time is just around the corner. The virtuous cycle of declining used car generation and rising used car prices has exhausted itself. Yet that was crucial to the debt financed car-buying spree because it meant rising trade-in prices and therefore enhanced capacity to make down payments and loan terms.

Thus, in the run-up to the new auto sales crash in 2008-2009, used car prices plunged by 20% and new light vehicle sales fell from an 18 million annual rate to barely 10 million at the bottom of the cycle.

By contrast, during the first three years of the post-June 2009 recovery, used car prices soared by 24%, enabling the credit fueled recovery of new vehicle sales shown in the graph.

Here’s the thing, however. The worm is fixing to turn because the used car market is facing an unprecedented tsunami of used vehicles coming off loans, leases, rental fleets and repossessions. As shown above, used vehicle prices have been weakening for the last several years, but between 2016 and 2018 upwards of 21 million vehicles will hit the used car market compared to just 15 million during the last three years.

This means used car prices are likely to enter another swoon like 2006-2008, causing trade-in values to plummet and thereby draining the pool of qualified new car borrowers. When the cycle turns down, fogging a rearview mirror is never enough.

To be sure, there is nothing very profound about the certainty that an auto credit boom always creates a morning after hangover, and that the amplitudes of these cycles is getting increasingly violent owing to the underlying deterioration of auto credit. Currently, average new vehicle loans are at a record 70 months, loan-to-value ratios have hit 120% and upwards of 80% of new retail auto sales are loan or lease financed.

Moreover, the race to the bottom is happening once again in the lease market. That is, monthly lease rates have gotten so ridiculously cheap that the implied residual values are at all time highs. This means that when the used car pricing down-cycle sets in during the flood of vehicles ahead, massive losses will be generated, causing a sharp contraction of the leasing market, as well.

Stated differently, the auto sales piece of retail sales has virtually nothing to do with a rebounding consumer. Its a reflection of an artificially bloated and unstable credit cycle that is about ready to take the plunge.

And that gets to a larger issue brilliantly dissected in a nearby post by Thad Beversdorf. The entire mainstream meme about the consumer being the 70% backbone of the US economy, and that implicitly households can spend the America to prosperity ignores a crucial factor. Namely, that the PCE (personal consumption expenditure) component of GDP is not the same thing as household jobs and wage and salary income, at all.

More than 25% of PCE is accounted for by government income transfers led by social security and medicare—both if which are heading for insolvency in the years just ahead. On top of that, the surge in household leverage ratios in the two decades leading up to the 2008 crash and arrival of Peak Debt added a further layer of spending power derived from credit expansion, not production and wages.

As a result, as Beversdorf’s chart demonstrates, the share of PCE accounted for by transfer payments and consumer borrowings has soared from 24% in 1993 to nearly 36% today. This means that the prospective trend of consumption spending is as much a matter of fiscal policy and household credit health as it is wage and salary growth.

To wit, reported PCE has grown from $4.4 trillion in early 1993 to $12.3 trillion at present. That represents a 4.3% growth rate over the last 23 years.

Yet had the 1993 transfer payment/consumer debt share remained constant at 24% of PCE——today it would be only $10.2 trillion, if you assume that the growth of government transfer payments on the margin was financed with Federal borrowing.

Screen Shot 2016-05-12 at 9.17.18 PM

At the end of the day, the seasonally maladjusted data for April retail sales amounts to no more than a swiggle in the larger trend. To wit, consumption spending financed by the growth of transfer payments and household borrowing is coming up hard against Peak Debt, while tepid growth in wage and salary income remains hostage to a domestic economy plagued with structural barriers to growth, an aging business cycle and a gathering global recession from which it is not remotely decoupled.

So contrary to Reuters and its Keynesian quote standbys, it is not true that “the demise of the U.S. consumer have been greatly exaggerated”.

Actually, it can be hardly exaggerated enough.

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stant's picture

Had to buy a new weed eater. Hope that helps, that's all I got

FreeShitter's picture

I shop for shit like that at my local pawn shop.  Practically got a new B&D leaf blower for 20.00. 

santafe's picture
santafe (not verified) FreeShitter May 14, 2016 8:09 PM

Nothing and no one CAN SAVE the US Economy. This is why.

http://goo.gl/TB1ezK

Squid Viscous's picture

I'm letting my weeds grow, they will make many nutritious salads after the SHTF

KnuckleDragger-X's picture

I've looked at some of the new cars helping a friend find a good deal, and the dealers are starting to get a bit worried, no matter how shiny the numbers look........

Arnold's picture

The new cars that I have looked and driven lately are not cars.

They are computers on four wheels.

Road radars, keyless, parking assistance, tablet in dash, EV shuts itself off, auto  switch between battery and fuel, etc.

'69 Dodge Challenger was a car.

https://www.youtube.com/watch?v=HA_QUJCWHA8

trader1's picture

Another Headline Head Fake

Swiss town in shock after suspect held over 4 killings

 

 

Authorities revealed grim details of the crime Friday. According to investigators, the suspect tricked his way into the Schauers' home on Dec. 21. He made the mother bind and gag the other victims before forcing her to withdraw about $11,000, said police captain Markus Gisin told reporters.

After she returned, the suspect tied her up, raped the younger son, killed all four by cutting their throats and set fire to the house

 

 

 

 

 

Consuelo's picture

+100

 

For bringing this up - not as an individual story, but as a general lesson in a home-invasion/hostage taking situations.   Of course, these are always 'fluid', but a general rule still applies:  Every second that elapses where you are not in control of the situation, multiplies the advantage to the invader.   Compromise is not an option.   Easier said than done, but well enough to at least have this aspect in mind should one ever be faced with it.

Zeusky Babarusky's picture

That is why there is a Glock 17 approximatley 12 inches from my keyboard as I type, with a Surefire tactical light mounted on the rail. Another Glock 17 with a Surefire tactical light under the edge of my bed, with laser. Another Glock 17 in the console of my car, which rides appendix carry under my shirt, and there is the Glock 43 the sits under my armpit in a 5.11 Tactical holster shirt. I'll be happy to make a victim out of a piece of shit like that. No remorse or guilt. I would have greater remorse for shooting a chicken killing dog.

Borrow Owl's picture

  That's like, um, totally tacticool, dude.

 

12cmKAPJ's picture

Wow. Do you also keep a 4-inch howitzer up your ass, at all times? No? Then you are not properly prepared my friend.

Atomizer's picture

Here I'm again in Myrtle Beach bike week. Not a planned event. Swat teams can use my 40 foot balcony to take out a negro took lives out lives. 

Wow Google, you really have become the Nazi class. 

Don't worry the statis is shitting themselves.  

chunga's picture

We've turned refusing to buy shit into a hobby. It's fun to see how much stuff you really don't need.

Dre4dwolf's picture

Really, its hard to justify buying crap to me, it has to really be something nostalgic to get me to buy it.

Like the new Doom Game, grabbed a key for 35$ , and its a blast, loved the old Doom games.

Very few things get me to splurge like that, but I am a sucker for anything that makes me feel like I am in the 90s again haha... 

Shit man I spend more time looking at old cars from the 90s than I do looking at new cars/concept cars, its crazy old 1993-1994 Toyota Supras can fetch anywhere from 15,000~70,000$ because people hate everything new, people have seen it all... and lets be honest a car from the 90s is just as good as a car from 2016, all you have to do is throw a 200$ Stereo in the dash and you have your Navi/Bluetooth/Sync........ whats really changed when you look at it?

Nothing

No progress has been made for the past 15 years+++

Solar Panels still suck/are priced out of reach

We still burn gasoline

........

Whats changed?

We got bluetooth in cars... big woop

The only industry that is actually moving is payment processing and computer tech/video game /entertainment.

Everything else is stuck in the 50s.

 

No important problems are being solved, the only industries that are progressing are the industries that only serve as distractions from our problems lol

 

We should of had Nuclear Fushion worked out and mars half colonized by now!

 

chunga's picture

There is often a moar robust manufacturing effort on the anti-theft packaging of the junk in stores than on the actual product. That's what most of the stuff is...junk. One of my favorite things are the new safety gas cans with the spring loaded spout.

No matter what the fuck you do it spills gas every single solitary time. It also has the great feature of building up pressure when the temp rises so gas shoots out. This is done because supposedly it's safer.

I am so sick of the word "fraud", but practically every single thing one can do or buy is fraud in some way. So almost every time we're tempted to buy something we remind ourselves it's probably fraudulent junk and fix what we have or make do without. SOmetimes we just don't buy things out of spite, like playing keep-away with money. Fuck them and their junk.

animalogic's picture

I try to limit discretionary spending to the essentials: alcohol, drugs and women. They might be old fashioned objects of desire, but I like them. (I certainly have no need for expensive storage facilities...)

WTFUD's picture

It truly is Unpatriotic not to spend any wealth in your possession and if you don't ,we'll figure out ways like O'Barrycare to prize it from your hands. The revolving door of co-opted Congressmen now on a cushy earner as a non-executive director at BankCorp or Booz is testament to the complete capture of nations by those deep-state private clubs.

Consuelo's picture

 

 

PCR: 'Insoucient'

Stockman: 'Stated differently'

Was there something in the DC drinking water during Ronnie's presidency...? 

;-)

 

 

jcdenton's picture

Much bigger than that dude ..

 

http://eagleonetowanta.com/

 

If it was in the water, it was truth serum ..

TonyRUs's picture

It would take less than five minutes to spot that dramatic slowdown by scrolling through the Census Bureau data. Apparently, the algos which scanned the April release and posted the stories didn’t have the milliseconds to spare.

I know he's being sarcastic. Its all a progressive political lie. For some odd simplistic reason the economy is tied to the President. If a republican, or even more so a conservative, were in office the entire narative would be completely flipped. The bubble-headed bleach blond money-honeys would actually tell the truth. 

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) May 14, 2016 2:55 PM

Good to see this myth shot in the head, finally. Like others, I refuse to participate in this insanity and am saving as much as possible.

Dre4dwolf's picture

When people are starting to save money, its already too late.

You should of been saving money for the past 2 years, because soon you will have to be drawing down your savings to survive until the recession/depression we just entered ends.

Taking a quick look around , looks like people are trying to save at the last moment..... I dont think the majority will be able to "save" enough purchasing power to get them through whats coming....

You have maybe 4 months to get your shit in order.

With luck all the banks fail and you can " save " by not paying your bills, if the banks survive this time around the depression will be worse because as people start to panic they will still beholden to their debts which will exacerbate an already bad situation.

 I think right now if you are not emotionally attached to your home etc, its a good time to SELL and hold cash/assets (a good chunk out of banks)  and buy a house after the storm/during the storm.... houses going for 1.5 - 2 will probably be going for 0.5 to 0.7 during the storm.

Could be a good opportunity to downsize your life and simplify it a bit if you have the financial mobility to do so.

 

adanata's picture

 

In 1973 my dad bought a very nice new car for $8,000 and chuckled that this is exactly what he paid for his first house. I still cannot grasp paying $40,000 for a fucking "mid level" car. Inflation/debt saturation. Gee, what do you think comes next...? Keep stackin'....

buzzsaw99's picture

sorry but there is no arguing that they are selling the shit out of light trucks, suvs, minivans, etc. 17M units cars & trucks this year.

silverer's picture

Gotta have a new car. At least a lot of people feel that way. They tie their self confidence and self esteem to what they drive. All those loans will default when the "event" occurs, because a lot of those new car owners don't have a pot to piss in or a window to throw it out of.

Inzidious's picture

Sure. I can only wonder how much of those sales are .gov purchases for new police fleets, etc etc

de3de8's picture

And "loaded" models knocking on 70k.... For a pick-up!

Bill of Rights's picture

We bull shitted some folks...

Last of the Middle Class's picture

Can't "boost" the economy anymore. Hell, it's in a fucking chop shop being sold part and partial to the highest banker even as we speak.

radbug's picture

Transfer payments & borrowings = 25% of PCE = "I smell helicopter money!" 

economichitman's picture

in the morning, gitmo slaves! :)

silverer's picture

I don't want to buy anything except time.

TheEndIsNear's picture

Hugo Salinas Price has some interesting comments about Stockman's ideas at Plata.com:

Enjoy the Election! Trump is a Great Showman!

2. Secondly, the road to "Sound Money" - but not in the Stockman style. "Sound Money" for the US must inevitably mean the repudiation of the "Bretton Woods Agreements" of 1944 which created the existential problem of the US, because "Bretton Woods" opened the way for a totally dollar-dependent world, which in turn guaranteed the devastation of US industry and the consequent impoverishment of its population. "Sound Money" means a return to the unthinkable (unthinkable by those who are not accustomed to thinking, that is) Gold Standard.

The very existence of the US depends on its return to the Gold Standard. A return which would be very painful, indeed, but which would make jobs sprout like mushrooms across the US, as imports would collapse to a level where there would be neither an export deficit nor an export surplus, and US producers would jump at the chance to reopen industries to supply the American consumer. There is a vital link between Jobs and the Gold Standard.

Will Trump establish the Gold Standard? Not bloody likely.

 

 

webb_ster's picture

Like how everyone is referred to as a 'consumer', i.e., useless eater - thanks shithead. I'm a citizen, person, earthling - f@ck off w/ the consumer b.s.

silverer's picture

I agree you've got a good point. ZH didn't create this situation, but if you asked, they would probably agree with your point as well. It's mostly a mainstream thing. It ends up as Soylent Green eventually, until enough people like yourself put a stop to it.