marți, 15 februarie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Population Adjusted Retail Sales and the "Real" Retail Sales Depression; 3 Factors to Consider Going Forward

Posted: 15 Feb 2011 03:24 PM PST

In Retail Sales Rise 7th Straight Month, Now Above Pre-Recession Peak; Making Sense of the Numbers; Housing and Auto Perspective I questioned whether retail sales are really rising and posted some charts of autos, housing, and sales tax data (the true measure of retail sales).

Housing is not a part of retail sales but housing does affect retail sales because of appliance sales, carpet, paint, fixtures, landscaping, etc.

This was my conclusion.
Car sales are not up in number, but they are up in price. The same applies to food, and many other items. Population is also growing. All of those things need to be factored into the equation.

Even if one accepts the retail survey is accurate (I don't because it misses too many small stores that went out of business and are still closed), real sales have certainly not recovered. That puts pressure on states because expenses, especially medical expenses and pension benefits have soared.

The Good News

  1. The good news (if you believe it), is that retail sales are finally back to January 2008 levels.

The Bad News

  1. State expenses are way higher than 2008
  2. Job growth is anemic and will likely stay that way
  3. Stimulus money has been spent
  4. Congress is unlikely to bail out states
  5. Interest rates are higher
  6. Mortgage rates are higher
  7. Gas prices are higher
  8. Congress is seeking spending cuts
  9. States are hiking sales and income taxes
  10. Property taxes are rising in spite of falling home prices
  11. Home prices are falling

Ironically, points 4, 8, and 11 are good things for the long-term health of the economy but economists will not see it that way because it will impact short-term growth.
Population Adjusted Retail Sales

I did not factor in population growth but noted that it should be done. "Dshort" did factor it in and has a nice set of charts that suggest The "Real" Consumer Economy Remains in Depression
Monthly Retail Sales With Regression Lines



The green trendline is a regression through the entire data series. The latest sales figure is 8.1% below the green line end point.

The blue line is a regression through the end of 2007 and extrapolated to the present. Thus, the blue line excludes the impact of the Financial Crisis. The latest sales figure is 16.1% below the blue line end point.

[Mish note: the above chart is not adjusted for population growth and income. The following chart is]

Population Adjusted Retail Sales



Consider: During the past 21 years, the U.S. population has grown by over 22% while the dollar has lost about 37% of its purchasing power to inflation. When we adjust accordingly, the rebound in retail sales from the bottom in April 2009 merely gets us back to the per capita spending during the late summer of 1999.

Retail sales have been recovering since the trough in 2009. But the "real" consumer economy, adjusted for population growth still in a state of depression — 8.3% below its all-time high in January 2006.
Dshort has some great charts. Inquiring minds will want to give his site a closer look.

Long Term Retail Spending Factors

Three factors that need to be discussed in light of retail spending trends are demographics, taxes, and changing consumer attitudes towards debt.

Demographics

  • Boomers are past their peak earning years and headed for retirement.
  • Boomers in aggregate will need to downsize their lifestyles.
  • Those wanting to downsize their houses and simplify their lifestyle have no one to sell to. This will keep enormous downward pressure on home prices.
  • Those fresh out of college cannot afford and will not buy the cars and homes their parents had.
  • Many college graduates are despondent over being hundreds of thousands of dollars in debt with no way to pay it back.
  • Student loans programs benefit no one but schools and teachers. Eventually students will revolt.

Taxes, Stimulus, Pensions

  • Many states are raising sales taxes, property taxes, income taxes and fees. This takes money out of consumer pockets to feed untenable wages and benefits for public union workers.
  • Cities and states are bankrupt over untenable public union wages and benefits. Either wages and benefits must fall or taxes have to go up.
  • The federal government will either raise taxes, cut spending or both. Either way will put a damper on growth and retail spending. Raising taxes will put a long-term damper on growth. Cutting spending is good for the long haul but will put a short-term damper on growth.

Changing Consumer Attitudes


  • There has been a massive secular change in consumer attitudes towards debts.
  • The trend is housing is towards cash-in refis from cash-out refis.
  • Banks are reluctant to lend except to the most credit-worthy borrowers.
  • Credit-worthy borrowers do not want to borrow.
  • Kids see their parents or grandparents arguing over debt, even losing their homes over debt, how vowed to not get in the same situation.

Retail sales are up but $150 billion in stimulus spending to states is going away. Spending cuts in Congress are coming. Pent-up demand for car sales will end, but pent-up need to dump housing inventory is building. Taxpayers are fed up, but many states are hiking taxes anyway.

All of those items place enormous headwinds on retail sales. It is quite possible the latest set of retail numbers is about as good as they get. That certainly is not priced into equities or nearly anyone's economic model.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Retail Sales Rise 7th Straight Month, Now Above Pre-Recession Peak; Making Sense of the Numbers; Housing and Auto Perspective

Posted: 15 Feb 2011 12:12 PM PST

Retail sales rose for the seventh consecutive month and are allegedly above pre-recession levels. Tax data seems to dispute that notion, as do auto sales and new home sales. The latter is not part of retail sales, but the furnishings that go into houses are. Let's take a look at this a number of ways to see if we can make sense of it all.

Retail Sales Rise 7th Straight Month


MarketWatch reports Sales at U.S. retailers rise 0.3% in January
Retailers' sales rose 0.3% last month as consumers spent more on gasoline, autos and online goods, the Commerce Department reported. It was the smallest increase since last July, however. Sales also rose 0.3% excluding the volatile automotive sector.

The increase in sales fell short of Wall Street's expectations. Economists surveyed by MarketWatch had forecast sales to rise by 0.6% overall and by 0.6% excluding the auto segment.

The government also revised sales data for December 2010 lower — to a 0.5% increase from 0.6% as originally reported.

"Spending growth has clearly lost some momentum," said senior U.S. economist Paul Dales of Capital Economics.

Stripping out gas and auto, retail sales rose a meager 0.2% last month. Sales dropped 2.9% at building-supply stores and declined 1.3% for retailers who sell hobby items, sporting goods, books and music.

Restaurants and bars also saw a 0.7% decline in sales — the biggest drop since March 2009.
Chart of Retail Sales



The above chart is courtesy of Calculated Risk who writes "Retail sales are up 13.7% from the bottom, and now 0.4% above the pre-recession peak. "

Here is a link to the Census Bureau Advance Monthly Retail and Food Services Report for January 2011.

Sales Tax Data

The only valid measure of retail sales is state sales tax reports. Unfortunately time does not permit a complete analysis. Not only would one have to look at 50 states, one would also have to adjust every state's tax collections for increases in sales taxes.

As a one-state snapshot, I frequently look at Texas to see what its trends are. Texas may or may not be a representative state, but it can provide some clues.

Texas Economy in Focus

Please consider the Texas Comptroller's Economic Outlook updated February 11, 2011.
Job growth, sales tax collections – both from business and consumer purchases – as well as automobile sales, signal that the Texas economy has emerged from the recent recession.

Another indicator that the state's economy has been comparatively healthy was the U.S. Bureau of the Census report that Texas added more people (nearly 4.3 million) than any other state between the census counts of 2000 and 2010.

Entering 2011, more than half the jobs shed by employers during Texas' shorter recession have already been recovered as our economy recovers more quickly than the U.S. as a whole. Nationally, only 13.4 percent of recession-hit jobs had been recovered ending 2010.

Texas and the nation returned to economic growth in 2010, with the nation increasing its GDP by 2.8 percent and Texas increasing its GSP by 3.4 percent.

Taxes

  • Texas sales tax receipts for January 2011 were 10.4 percent higher than for January 2010.
  • For fiscal 2010, state sales tax receipts were down 6.6 percent from fiscal 2009.
  • Motor vehicle sales tax collections for January 2011 were 19.6 percent higher than for January 2010.
  • The average core transaction price nationwide for a new car or truck during the first 15 days of December 2010 rose 12.5 percent to $28,484 from $25,326 in the first 15 days of December 2009.
  • For the first 15 days of December 2010, total national new auto sales were 555,997 units, up 9.9 percent compared to first 15 days of December 2009.
  • Nationally, leases accounted for 28.1 percent of new vehicle sales in November 2010, an increase of 15.6 percent from November 2009.

Stimulus Package

In Texas, an estimated $18 billion in federal stimulus money is flowing to state and local governments.
That looks pretty good. However, there was $18 billion in stimulus money that will be headed out the door. Moreover, sales tax receipts for fiscal 2010 were down from fiscal 2009, and 2009 was down from 2008. That is in spite of an influx in population.

Texas State's sales tax collections up again but not enough

On December 8, 2010 the Statesman noted Texas State's sales tax collections up again but not enough
Texas' sales tax collections in November increased 8.7 percent over the same month a year ago, marking the eighth straight month of growth, according to figures released by Texas Comptroller Susan Combs on Wednesday.

So far, the first three months of the fiscal year have generated about $5 billion through the sales tax including the $1.84 billion collected last month. The November collections reflect transactions in October.

While a marked improvement over last year, that first-quarter total is still around $400 million below the collections at the same point two years ago, which is a more telling indicator of the state's revenue situation.

The approved 2010-11 budget is based on projections that sales tax collections would hold steady in the first year of the budget and then increase by 7 percent in the second year.

The actual first-year collections were down about 6 percent. And the state is still not keeping pace with where it is supposed to be for the second year nevermind making up ground for the previous year's lackluster performance.
Did Texas finally catch up? I am not so sure. What happens when stimulus fades out?

Auto Perspective



Auto sales are well below the pre-recession totals. One way to make up for the difference is if average car prices are considerably up from late 2007. That seems likely as noted by Texas Comptroller Susan Combs.

"The average core transaction price nationwide for a new car or truck during the first 15 days of December 2010 rose 12.5 percent to $28,484 from $25,326 in the first 15 days of December 2009."

Housing Perspective

New and existing home sales are not part of retail sales. However, the appliances, furniture, landscaping, carpet, paint, remodeling work, etc., is.

New Homes Sales



The above chart from New Home Sales increase in December

New home sales certainly do not support the notion that retail sales should be improving. Those are incredibly dismal numbers.

Existing Home Sales



The above chart from December Existing Home Sales: 5.28 million SAAR, 8.1 months of supply

While new home sales do not support the notion of rising retail sales, existing home sales might. Certainly there was a huge spike in home sales related to various tax incentives, and the buyers of those homes are highly likely to re-carpet, buy new appliances, buy paint, improve landscaping, etc.

The question now, is where to from here?

"Real" Retail Sales

Finally, here is one chart that helps tie it all together.



"Real" means inflation-adjusted (price-adjusted). Car sales are not up in number, but they are up in price. The same applies to food, and many other items. Population is also growing. All of those things need to be factored into the equation.

Even if one accepts the retail survey is accurate (I don't because it misses too many small stores that went out of business and are still closed), real sales have certainly not recovered. That puts pressure on states because expenses, especially medical expenses and pension benefits have soared.

The Good News

  1. The good news (if you believe it), is that retail sales are finally back to January 2008 levels.

The Bad News

  1. State expenses are way higher than 2008
  2. Job growth is anemic and will likely stay that way
  3. Stimulus money has been spent
  4. Congress is unlikely to bail out states
  5. Interest rates are higher
  6. Mortgage rates are higher
  7. Gas prices are higher
  8. Congress is seeking spending cuts
  9. States are hiking sales and income taxes
  10. Property taxes are rising in spite of falling home prices
  11. Home prices are falling

Ironically, points 4, 8, and 11 are good things for the long-term health of the economy but economists will not see it that way because it will impact short-term growth.

Addendum:

Please see Population Adjusted Retail Sales and the "Real" Retail Sales Depression; 3 Factors to Consider Going Forward for additional charts and discussion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


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