The Wall Street sales tax is very much in the mainstream. HR-6411, introduced by Congressman Keith Ellison (MN), is gaining support in the US Congress and Vermont Senator Bernie Sanders has pledged to introduce such a bill in the US Senate.
Euro Area Retail Sales Portend Negative Quarter of Real Consumption
Today Eurostat released its June estimate of real retail sales for the Euro area. On a month/month basis, real retail sales increased at a rate of 0.1%. However, on a trended basis, the 3-month/3-month average growth rate was down 0.7% in the three months ending in June. Given that the 3-month trended pace of contraction quickened compared to Q1, real consumption is likely to detract from Q2 GDP growth (spending components released on August 23).
On a Y/Y growth basis, there’s a 96% correlation between real retail sales and real private consumption by households and non-profit institutions. Using a simple linear regression, the annual growth rate of consumption should stabilize somewhat in Q2 compared to Q1.
Across the region, real retail sales in Ireland, Estonia, and Germany are the only reported countries to see growth through Q2.
On balance, Q2 domestic consumption spending in the Euro area is expected to be buoyed by Germany through June. The problem is, German retail sales growth have just a 38% correlation with real consumption growth, so the bump in retail sales won’t necessarily feed through to consumption at the aggregate level.
Euro area real consumption is still contracting. The question then becomes: will the pace of consumption contraction increase or decrease in coming quarters? We’ll have to watch leading indicators such as retail and consumer confidence, both of which deteriorated in July.
cross posted with The Wilder View…Economonitors
Barry Ritholz keeps us abreast of retail spending:
Last month, I published a post on the nonsense that is Black Friday sales (No, Black Friday Sales Were Not Up 16% (not even 6%). That evolved into a Washington Post article, Did Black Friday save the season? Beware the retail hype.
Today, we learn that many breathless forecasts from NRF to ShopperTrak were so much hot air and empty hype: Sales were flat to up only modestly. Total U.S. retail sales in November gained only 0.2%, following a 0.6% October. Even that month was revised downwards.
Retailers themselves may pay the price for their massive discounting: Not only might their quarterly earnings be affected by the margin pressure, but they continually train investors shoppers to hunt for discounts. Retail therapy and sport shopping are being replaced by extreme couponing and sites like Living Social and Groupon.
Retail Sales in U.S. Climbed Less Than Forecast (Bloomberg)
U.S. retail sales rise slightly in November (Marketwatch)
After the US report on Q2… Angry Bear and credit market weakness in the eurozone, Rebecca takes a look at the retail side of the economy:
Retail sales in Germany and Spain were reported last week for the month of June. On a working-day and not-seasonally adjusted basis, real retail sales fell 7.0% on the year in Spain. In contrast, working-day and seasonally adjusted real retail sales surged over the month in Germany, 6.3%, and posted a 2.6% annual gain.
But the Spanish data is better than the non-seasonal numbers would suggest. In fact, accounting for seasonal factors as in the manner done by the Federal Statistical Office of Germany, Spanish real retail sales posted a monthly gain, 1.2% in June. Don’t get too giddy on me – the Spanish data looks awful in a small panel (time series and cross section).
The rest of the post is here: Real retail sales in Europe: will German consumers save the day? Maybe, perhaps
By Daniel Becker
We all know the arguments about the loss of good jobs. Automation, competition, outsourcing. We’ve been told that America was striking out to raise it’s status when it came to jobs. Don’t lament the loss of those blue collar manufacturing jobs to cheap labor. They aren’t worth it. Step up. The new jobs will pay more if you get educated. Well, an entire generation got educated, and they are now looking for a job that will just keep them at their status quo.
We seem fixated on just this singular aspect of the decline of the middle class. Well, there is an entire sector of our economy that was and is just as important to growing and keeping a middle class: Retail.
The entire economic focus on finance to the point of believing that all that is important to having a successful economy is to keep improving the efficiency of money has not only generated a formula for making money from money (CDO, CDS, ABS, subprime, leasing, arbitrage, shorting, longing, etc, etc, etc) it has also convinced us and made us act on the idea that consolidation is efficient and that efficiency is growth. The old “economies of scale” thingy.
Well, here from my friend is what he recalls of main street in Central Fall, RI. This is what we lost as a pathway into middle class for the sake of “efficiency”.
“When I was younger, Dexter Street was alive with activity. Anything you needed you could purchase on Dexter Street. There was a shoe store, two hardware stores, a jeweler, two bakeries, three or four restaurants, about 5 bars, a military store, two pharmacies, three barber shops, two liquor stores, about four of five variety stores, two meat markets and a fish store. They are all gone.”
It’s is not just the loss of the mills. Central Falls et al could have survived at a much greater level of prosperity if the people had not lost the only path to actually receiving benefit from outsourcing. But, with outsourcing came consolidation in not just manufacturing, but also in the end point distribution of all that consolidated manufacturing: Retail. The efficiency gained of the dollar producing a product outside the USA was consolidated by the move to consolidate the retail part (and wholesale too). The lack of share of productivity gains to the masses is not just do to the loss of manufacturing. It is also do to the loss of access to retailing.
Sure, we all thought it was grand buying something for much less than what Dexter Street Hardware USA could sell it for. We had more money in our pockets after the purchase. How’s your community doing now?
It’s not just industrial New England that lost retail as represented in the loss of “Main Street USA”, you know we are hearing of the destruction of the “heartland America” main street. I’m not talking about the loss of the cultural experience that “Main Street USA” represented, though there is that. We closed down for the sake of money efficiency, the other primary path to become middle class. In doing so, we also reduced the movement and thus booking of dollars within the local community. One dollar on Dexter Street, Central Falls, RI could potentially be booked in 31 businesses just by the owner of the business. Even if with that one dollar divided among the employees, that dollar still for the most part stayed in the community to be booked potentially 30 times. One dollar in Big Box Mall USA is divided up such that only a few cents per employee gets booked in the local community with the rest going up line to the few.
No, the trades related to construction can not make up for the loss of independent retail. Retail was a major cylinder in the small business engine of our economy. It was also a major path to political reality and activism.
It’s time we start broadening the discussion to beyond just money efficiency. Just as with the concept of the “free lunch” tax cut, that is, that there is no free lunch to growth via tax cuts so is it true with efficiency based on the slogan of “economies of scale” when talking about money’s roll in the entirety of society. That we can buy stuff from overseas cheaper at Big Box Mall USA is not enough of an answer to accepting this paradigm.
I remain very skeptical about the sustainability of the recovery, as the labor market is in shambles and nominal wage growth is unlikely to facilitate “healthy” deleveraging – please see this recent post “Reducing household financial leverage: the easy way and the hard way”. I digress; because you can’t fight the data. And for now, the consumer is back.
The latest retail sales figures reveal two bits of information worth noting. First, autos were a big factor in the March 2010 surge. Second, even though the large contribution from motor vehicles and parts compromises my enthusiasm somewhat, the underlying trend has emerged: consumers are less frugal in spite of income constraints.
The March advanced retail sales report was genuinely strong, 7.6% annual pace since March of last year or 1.6% over the month and seasonally adjusted. At first I thought that this heroic sales growth was just a scam. March auto sales were unusually large in response to the competitive pricing during the peak of the Toyota scandal. See Edmunds.com’s preview of the March light weight vehicle sales that registered a large 11.75mn gain.
And in reality, the March number was driven largely by auto sales, contributing 1.1% to the 1.6% monthly growth in retail sales. Furthermore, 36% of the total sales bill drove 5.7% of the 7.6% annual gain: nonstore retailers, motor vehicles and parts, and gasoline stations.
One could stop there (which I almost did); but upon further examination, a real trend is breaking out: the growth is broadening across categories with each month that passes. Just look at the evolution since January 2010 (after revisions, of course).
The charts illustrate the sequential contributions to growth from each major category in the advanced retail sales report from left (January 2010) to right (February 2010) to lower left (March 2010). The number next to the date for each chart (title) is the annual total retail sales growth, and you can find the data at the census website here.
You might ask yourself now, what do retail sales look like when conditioning for the robust growth in nonstore retailers, motor vehicles and parts, and gasoline stations? What’s happening to the other 64% of sales? Here’s where the green shoots become even more evident.
However, as I have stated time and time again, further deleveraging is imminent. Whether that happens through default or through income growth is all the same in the aggregate – that is, until default causes further macroeconomic instability. Until the economy generates income enough to pay down leverage, the risk of a double dip remains as the inventory cycle is laid to rest. Economic momentum is gaining; let’s just hope that policymakers don’t screw it up.
Here’s something of interest: our friend rjs is looking at a sales tax conundrum….
No matter who “won.”
Anyone who knows the phrase “think at the margin”—with or without the differential calculus and comparative statics—would have predicted that the Bankruptcy Bill (a.k.a. The Ken Lewis Retirement Subsidy Act) would damage to the economy when it was least able to survive the damage.
What no one knew for certain was how much:
According to [a BusinessWeek] article, this year, 15 retailers with assets of $100 million or more have filed for Chapter 11 protection, and almost all that filed in the first three months of the year have rapidly liquidated. Compare that outcome with Professor Lynn LoPucki’s research showing that in the 20 years prior to 2005, only 41% of the 94 retailers that filed for bankruptcy went out of business, with Kmart, Winn-Dixie Stores, and Macy’s being among those that emerged successfully from the process.
The difference between retail sales and banks is that there is no “Fed discount window” for retail. Indeed, quite the opposite:
All filers are covered by the new bankruptcy law, but the changes were particularly harsh on retailers. For companies that already are short of cash—and, in the current environment, unlikely to find new financing—these new provisions in the law can amount to a death sentence. “Liquidity is sucked out of the debtor in a way that it becomes hard to survive,” says Lawrence Gottlieb, chair of the bankruptcy and restructuring practice at New York law firm Cooley Godward Kronish, who has represented creditors’ committees in the bankruptcies of Sharper Image and Linens ‘n Things.
The idea of being able to borrow from the Fed is that that money then gets put back into circulation, supporting the economy (think “multiplier effect”). Otherwise, it just becomes inflationary. Which appears to be what is happening.
It was bad enough that consumers (most of whom file bankrutcy after health events, which may or may not be associated with a loss of employment) face a tougher row to hoe; the gaping holes that used to be large retail stores (think CompUSA) will be even more difficult to fill.
Many of the “mall owners, suppliers, and utility companies” who wanted the changes in the corporate bankruptcy bill made may be thinking of the old proverb: “Be careful what you wish for. You may get it.”
I am member of AAII (American Association of Individual Investors). They send out their Investor survey results every week. This weeks:
Bullish 25.58% Long term avg. 39.3%
Neutral 21.71% Long term avg. 31.9%
Bearish 52.71% Long term avg. 28.8%
We have all read exuberant stories about how wonderful Black Friday was. The WSJ is doing it’s part to promote sales prior to the event:
For those seeking a second opinion on the gloomy holiday spending outlook, here it is:A survey of 2,570 Americans with household incomes of more than $35,000 suggests that the expectations of weak holiday sales are overblown.
“The doom and gloom is overstated. Unemployment is low. Real incomes are healthy,” said Michael J. Silverstein, a BCG senior partner. “Consumers overall predict that this holiday season will be just as good, if not better, than last.”
Unfortunately this is all based on a month old survey. A time when the $3.199 I just paid today to fill the oil tank did not exist. The schizophrenic side of WSJ had this to say the next day, 11/16/07:
Fred Crawford, managing director at Alix Partners, a turnaround consultant, says: “The reason so many retailers are coming out aggressively is that they’re expecting a bad season.”
There is a nice little chart of the expectations of the big retailers with this article. They’re not to excited.
I asked at a forum only for florist and related business: How’s it going now that Thanksgiving is past?
“We hear a lot about how bad the US economy is doing but things are’nt great in Europe either. Retail suffered a lot in 2007 and Ireland was no different .Some times during the year I felt like tearing my hair out . It was really quiet during the summer but picked up from Sept and Nov was brilliant for me.”
“Actually, it has been the slowest Sept. and Nov. that we’ve ever had. As I said in a previous post, maybe our moving has confused customers or it’s the economy. It is really scary to have just made a hefty investment in a new building along with moving and renovation costs.”
In our area, we can tell that gas prices are affecting sales – both holiday & everyday.We filled up 2 vans yesterday at @ 3.15/gallon (OUCH!!). My local tracking trends tell me that when customers have less money to spend, they are looking for more ‘longer lasting”, “higher perceived value” items. Generally for us, that means that or fruit baskets business greatly increases, and often our plant/poinsettia business increases. We will be cautious in our fresh flower buying….staying ahead of the game, but not in too deep!
Sales in Sept. were in the expected range but October was down significantly. November is not too bad but not great. Sure hope December brings better things or I will have to lay someone off.
Our November so far, compared to the last year’s:
Local sales: up 17%, Wire-in: down 25%, Wire-out: same. Actually, it was disappointing. We usually do 20-30% better than last year’s numbers; this year is our 3rd year beginning July. The problem was the average sales price. Compared to the last year, this year’s average sales price in November is 10% down. It’s so clear. Our customers are cutting back the expense. We will use this info to adjust our price point for Christmas, which is more important than November sales.
There is an even sadder story by a shop owner of 26 yrs in Kansas who bought houses, put kids through college etc, etc and is now thinking of closing because they can’t make it.
We used to have a full business district, 3 clothing, 1 shoe, 3 hardware, 8 restaurants, 2 convenience stores, 2 pharmacies, 2 flowershops, 2 gift, 1 childrens store, 2 grocery, Dollar General, Duckwalls, and 1 lumberyard. We are down to me, 1 gift, 1 pharmacy, lumberyard, 1 grocery, Dollar General, 1 convenience, 4 restaurants. I have heard that Duckwalls and the gift store are going out of business by Jan 1. We are down to one mortuary, used to have 3. MY TOWN IS DYING! Small town america is dying.
I worked in high school for a small family retail business, and the owner noted that such businesses were always ahead (by 6 months) of the national rhetoric as to the state of the economy. My shop peaked in the summer of 2006. This year even credit card sales are down where as last year only cash was off but credit card sale were up. We were off 3.4% for the year until August hit. We are now 7.8% off. People are not even trying to spend “discretionary income”.
Here is one article quoting the National Retailers Federation concerning Maryland:
‘‘Our annual survey showed our members to be very pessimistic this season,” said Thomas Saquella, president of the 600-member state retailers group. One-third of business executives who responded to the Maryland survey predicted sales decreases during the holiday season, compared with only 7 percent in 2006. Only one-third believed that third-quarter sales provided some positive momentum for the holiday season, compared with two-thirds last year.
Referring to the accuracy of prior surveys:
If the projections are that accurate this year, this holiday season would see the smallest gain since 2002. Sales that year increased nationally by only 1.3 percent, according to the retail federation.
Bloomberg had this to say yesterday:
U.S. consumers spent an average of 3.5 percent less during the post-Thanksgiving Day holiday weekend than a year earlier as retailers slashed prices to lure customers grappling with higher food and energy costs.
And, last but not least I dropped of the shop van at my friends repair shop this morning making an appointment for the personal van. He had today and ½ of tomorrow scheduled. The rest of the weekly chart was empty. He started building a new house this past March. Now he’s feeling the pinch cause he can’t sell his current house. The new house would have been paid in full if he could have sold the current house. Best laid plans….
My sweet keep complaining about being poor (I told her she had to choose between Celine Dion and 1 of her weeks at the beach). I keep telling her we’re not poor, we’re broke. She responds with: “And why did we buy this flower shop?”