Let’s take a quick look at the Retail Sales data, and put to rest some amusing theories about the resilience of the consumer.
The spin has been all positive since the data came out. Expectations were for a rise of 0.3%, according to a Dow Jones survey, based upon the huge drop in gasoline prices. Earlier in the week, I heard a talking head on CNBC opine he would be surprised if Sales didn’t exceed that, given all the newfound cash in consumers pockets thanks to energy savings.
Surprise! Retail Sales decreased by 0.4%, according to the Commerce Department (seasonally adjusted data). August sales were revised down to a 0.1% increase from a 0.2% increase.
Now for the fun part: Retail Sales can get reported in a variety of "EXes;" Ex-Auto, and Ex-Gasoline are tow more common versions. Ex-Gas retailers, and sales were up 0.6%; Ex-autos, and sales were down 0.5%. Excluding both autos and gasoline, all other retail sales increased 0.8% in
September.
What can we learn from this? Quite simply, despite the huge drop in gasoline prices, total sales were still off nearly half a percentage point in September. (I’ll mercifully spare you of any further zero sum discussion).
One might have thought that, given all of the dollar savings at the pump, at least an equivalent amount of dollars would have been plowed back into the economy. Indeed, the new found energy savings could have led to a wealth effect, leading to more big ticket items — including cars.
Nope. But taking a page from the school of inflation ex-inflation, if we remove the items that went down in sales, we can reach the conclusion that sales were not punk.
>
UPDATE: October 14, 2006 7:58am
Funny, if you go abroad, the view from afar of U.S. Retail Sales is far less enthusiastic than that of the local cheerleaders:
US: September retail sales unexpectedly down (-0.4%)
BNP Paribas, Caroline Newhouse-Cohen, Oct 13, 2006
I actually disagree with you on this one. Looking at the data without gas and autos gives you an idea of what else is going on in the world. The Gasoline decline was so steep that it skews the numbers and doesnt paint an adequate picture of what happened. Ex’ing out the gas number, in this case, is the prudent thing to do.
I appreciate your confirmation of my suspicion; gas price fluctuations dominate this statistic and the interperetation of how things are going on “Main Street”. Is enegry fluctuation a significant part of GDP?
Aren’t you assuming that new cash from lower gasoline prices have to go back into retail sales? There’s other outlets for cash, investments, savings, etc.
I don’t see this report as either bad or as good news. US retail gasoline demand is inelastic, and we well know the consumer prefers borrowing to cutting spending when energy or housing costs rise. The year-over-year numbers still look reasonable.
While like you I expect production and consumption number to disappoint going forward, this report doesn’t show it. It’s data like these that keep me long index calls to stay 100% net long versus my few, cautious shorts.
You would expect bonds to rally if the numbers were weak. But bonds are selling off, at least so far. Also, the dollar looks really strong today. Fed funds futures are pricing out any easing from the Fed. I’m not saying Barry is wrong, but I can’t find confirmation of his thesis in any market right now.
My concern at this point is the chance that the Fed reverts to their old habit of “finishing with a bang”; a .50 hike at this point would be fatal to this stock rally.
C’mon, Barry, you aren’t actually trying to say these numbers are bad, are you? They actually fit perfectly with the soft landing thesis. That doesn’t mean that the soft landing will definitely happen, of course, as things could turn down sharply in the future, but so far consumer spending, as shown by this data, looks fine. Look at the sub-categories:
Furniture – Up .2%
Building Material/Garden – Up .6%
General Merchandise – Up 1.1%
Health/Personal care – Up .2%
Restaurants & Bars – Up 1.0%
Mail Order & Internet – Up 1.1%
Electronics & Appliances – Up .2%
Sporting Goods – Up 1.1%
Food & Beverage – Down .3%
This is bad? Even housing related areas such as Furniture and Building Material/Garden were up on the month. If the economy is already tanking, someone had better tell the American consumer. Unless something dramatic happens in the next month or so, it is looking like a good Christmas season.
Friday the thirteenth not so scary
The latest data on retail sales, tax receipts, and consumer sentiment all look consistent with the soft landing scenario.
Anyone care to predict when the VIX hits 1? :>)
Ex gas stations, purchase rose 1.0%
Online and catalog sale rose 1.1%
Dept Store sales up 1.0%
Target same store sales up 6.7%
Federated same store sales up 6.2%
Bond market selling off on the news.
Ex this, ex that. Are there any Ex-wives in there? Hey the economy is great ex-housing, ex-wages, ex-autos, ex-oil, ex-xenophobia, ex-Iraqi war, ex-Bush, ex-Cheney, ex-Rumsfeld, ex-Foley, ex-fatass Hastert who appeared to let a pedophile roam free for years and prey on kids. I can’t wait for the elections. I mean the 2008 elections. I’m so goddam fed up with our government and I can’t ever remember feeling this way. Ever. This fanatical right wing Bible toting bullsh*t is getting on my nerves. And, while I portray a pr*ck on here, I’m actually a spiritual person so for me to say that is a major shift in sentiment. That likely means those who are died in the wool Democrats are going to be out in droves. I guess it all started when Ken Starr took $200 million of my money to prove BC got a blow job. I’m so fed up I just want to f8ing puke. I loved Reagan and actually liked Clinton. Even Bush#1 wasn’t polarizing. Christ, I’d take Jimmy Carter over this. Maybe even Nixon. At least Nixon with all of his foibles knew foreign policy.
Nice *fact* based, featured blogs with the last few.
The government may be doing some short term repos but I don’t believe it’s anything serious because the dollar is strengthening. I expect that to continue for a lonnnnng time given we seem to be off of our dirty dollar talk with Pat Paulson in there. Btw, is he running for President again? Goddammit, I’d vote for him this time!
Let me make sure I understand this:
Gas prices drop by a third, and yet the American consumer spent less than the fuel savings? Us?!?
The total spending went DOWN 0.4% — pull out the net positive sectors all you want. CONSUMERS SPENT LESS. THEY HAD MORE MONEY THANKS TO GAS AND THEY STILL SPENT LESS.
Don’t argue with me about it, go leverage yourself up with some retailers! Buy Mortimer, Buy!
http://stockswatch.blogspot.com/2005/12/bye-bye-nasdaq-2000-hello-3000.html
BDG123, that gets my vote for “Comment of the Day.” Across the entire blogosphere. Thanks – you made my day.
:-D
BR,
The crowd is in a party mood and they do not want to hear anything else that might spoil the party. They will twist and distort the facts and find something to exclude to make it fit into their distorted reality.
“The masses have never thirsted after truth…Whoever can supply them with illusions is easily their master; whoever attempts to destroy their illusions is always their victim.”
– Gustave Le Bon, “The Crowd” 1896
Thanks. I wonder if my ex would agree. lol. I guess since I’m anal I have to say it should be dyed not died. Some type of underlying Freudian slip.
Btw, I’ve done a Fibonacci, accumulation, upside down, sideways, basing pattern, cup and handle, inverted economic analysis on retail and I have an upside target on AEOS of 3,000. WMT 2,000. TGT 7,000.
Barry,
Great interview on robtv this morning. Everybody here should go look at that one. Very smartly done. (Nice sweater, too.)
On politics, remember the great Democrat Tip O’Neill said, “All politics is local.”
A lot of the global complaints of the Democrats aren’t going into the voting booth with voters who have their own local issues and “their” candidates. (“Yeah, the Republicans are corrupt but, not my Republican” and “Yeah, the Democrats are corrrupt but, not my Democrat.”) So it goes.
Lets see consumers save money on gasoline purchases and you still write a negative story.
The ONLY negative is the autos. If you had focused on Autos you could have written an accurate, negative, narrow minded story.
Sorry but the big picture was positive…. Wait a minute I thought this Blog was about the BIG PICTURE????
Gasoline miraculously down – employment revision up – housing stabilizing – stock market levitating itself up – the Fed lending money to the speculative banks to “liquify” the system –
I’ll bet the SOB’s are working on taking the vote away from huge gerrymandered sections of the population again.
BDG123 gets my vote and so does the opposition. We may very well need the right to bear arms in the not to distant future.
VL is correcto. The only power greater than the mob is da fed, or so it seems.
So, THIS is what irrational exhuberance feels like……..
I like it. I will definitely leave the ball early, but oh it’s fun while it’s in full swing! There isn’t an ugly sister in sight!
I hope that Bernanke guy is keeping a close eye on my pumpkin……
Whoa, Barry, take it easy. We’re just discussing the fate of the world economy here, there is no reason to get so excited. : )
The consumer received an effective windfall due to gas prices being lower. You seem to be saying that unless that consumer goes out and spends 100% of that windfall, it is a very bearish sign. I don’t think that is correct.
Imagine if the government decided to have a one time tax rebate where every tax payer received $500. What would consumers do with that in a healthy economy? Would they immediately spend it all? Of course not. They would spend part and use part either as savings or to pay down debt. Which is, coincidentally, what they have been doing with the equity they have drawn from their homes over the past few years.
Now, if they hadn’t spent any of that windfall and all of those categories had declined, that would be a bearish sign that customers are battening down for expected bad times ahead. But they did spend some and used the rest to pay down debt or add savings. And given the fears that housing had already gone over the cliff, the spending on housing related consumer goods was a very positive sign.
Outside of gasoline, almost all the categories showed growth. As for the gasoline spending being down (which accounted for the negative headline number), that is bullish since it is because of lower prices. If it had been due to fewer gallons being used, for example, that would certainly have been a bad sign. After all, if gasoline spending had soared because the price shot up, you wouldn’t consider that a good sign for consumer health, would you?
A hard fall might still be coming, but this data (along with a good consumer confidence number today) shows that it isn’t here yet. And unless the American consumer decides that the fall is coming and cuts back accordingly, the economy will keep chugging along, even if growth is below trend due to housing weakness. Next month’s data, of course, might tell a very different story…
corner, I would argue that we could have a “hard fall” is probably likely but a real recession is unlikely if consumers keep on spending wildy with no real money, but untill the housing slowdown ripples through the economy. Barry’s list was:
1.Soft landing
2.Hard landing(2001,1970)
3.Recession(varying levels)
4.Depression
How consumers respond to the hard landing will tell the tale. In 2001 they kept right on spending……………..
It seems to me that it makes perfect sense to exclude gas. Gas was cheaper this report than last. And the report doesn’t measure gallons of gas sold, but the dollar value of those gallons. So a greater amount of product could be sold while less money changes hands.
I think everybody’s looking for an answer to the question of whether the housing slowdown is hitting consumer behavior yet. The best way to answer that question is, indeed, to look at the ex-Gas number.
I think you are very right and very wrong about two things, Barry.
You are very right that a house of cards has been built out of loose money and it’s going to collapse.
You are very wrong (in my humble opinion) about your recent intrerpretation of the data over the last few weeks. You seem to be emphasizing the maligned measures and their inapplicability to the current situation. But that argument doesn’t hold water time after time after time.
The facts seem to indicate that the consumer is going on relatively undaunted right now. More cards are being laid on top of the already unstable house of cards. That’s not the way it ought to be (in many respects), but it looks more and more like that’s the way it is.
Please don’t fall into the trap of selectively emphasizing certain facts the support your hypothesis. Your blog is very good at calling out others who do that and, except for the last couple of weeks, avoiding that entirely. You must be like the Buddhist and accept the reality of the world even if it causes cognitive dissonance with what you think reality ought to be.
Vix at 10.8.
I’m opening a bottle of Chteau Le Pin Pomerol 1999 I didn’t drink in 2000 since the market crashed.
Let’s party like it’s 1999.
Barry,
I would second Sherman McCoy’s comment.
I agree that the intensity and duration of the current rally do not make sense. And it is precisely when things stop making sense that we are most likely to lose our objectivity.
BTW, since the rally is liquidity driven and the hedgies have all sorts of cash, where did this liquidity come from? There are two things going on right now that do not add up: as the housing fall starts to unfold, the Dow is racing upward and as the US deficits continue to expand, the dollar is rising. Could the two be related? Is money flowing into the US and bidding up equities? If so, why?
I agree with Barry. It’s amazing that folks don’t understand the implication of last month’s retail sales. Net-net they went DOWN. And let’s not forget, both Aug and Jul were revised down. Q3 retail sales look to be less than Q2. AND state sales tax receipts have been trending down for several months. The message is clear and obvious, and I don’t think I need to state it.
Kevin_r – “Is money flowing into the US and bidding up equities? If so, why?”
Borrow cheap yen at low interest rates, buy US bonds and equity. Leverage gains, rinse and repeat. It works… until it doesn’t.
Commodity markets ex-commodities:
http://guambatstew.blogspot.com/2006/10
/friday-13th-october-syle.html
“You are very wrong (in my humble opinion) about your recent intrerpretation of the data over the last few weeks. You seem to be emphasizing the maligned measures and their inapplicability to the current situation. But that argument doesn’t hold water time after time after time.”
Sherman McCoy,
It is always easy to criticize somebody in retrospect. (Gee, what a cheap shot!) Can you also be more specific as to what you consider as “very wrong”?
I have looked through the blog and I did not see Sherman McCoy’s interpretation of the data.
You can see what ever you wish to see but the numbers can be misleading and seasonal noise because retail numbers can be related to students using their student loans (and getting deeper into debt) for buying clothing, shoes, computers and books (a.k.a. back to school shopping)
Oct. 13 (Bloomberg)
“Shoppers snapped up clothing, shoes, computers and books, helping drive a better-than-expected 3.8 percent gain in September sales at stores open at least a year, the New York- based International Council of Shopping Centers.”
Glenn, if feels like 2000 all over again. The denials, the anger toward reality, truth not spoken. The main difference is the FED liquidity pump trying to spark another stock boom, which is pathetic really. In the end it will just cause a greater plop and enhance more fear. Dad was right again.
Some people want it to fast and overreact “everything is ok”, other people are to slow and think it is years off. But the time has arrived. The endgame a neareth.
Reality is not kind to the blind.
Why in the world is it appropriate NOW to exclude gas? Was gas being excluded during the summer to highlight just how punk retail sales really were? I don’t remember CNBC taking that approach.
BR and Glenn_in_MA *are* zeroing in on the bigger picture. The American Consumer spent less in September. Way less. Any way you cut it, that’s bad news for the Big Boyz Ponzi Finance industry that depends on an ever-widening credit base to keep the ship afloat.
looking at retail sales ex-auto and ex-gas is the cleaner read each month. simple example (example fits this months percentages):
my retail purchases are $1000 last month. $200 in gas and $800 at various stores.
this month i spend $996. $189 in gas (reflecting the drop in gas prices) and $807 at various stores.
so my retail sales are down .4%, but i really spent .8% more. i bought the same amount of gas for cheaper and spent a little more at the mall.
Barry wonders why consumer spending is down, and where did all that money from fuel savings go. I have the answer.
The retail sales data doesn’t include subscriptions to the Action Alert portfolio.
Booyah.
I am pushing back on MSM blather. When I hear all morning how strong retail sales were, I am offerering an alternative view, along with some context.
There is no wealth effect (as overheard on Bubblevision) via saving $4 per fill up per car per week. That’s not remotely the same as pulling 75 large out of the homestead, or watching your portfolio double in a year.
And if the gasoline savings are so great, than even a 0.8% (ex cars ex gas) is not a house a fire.
Oh, I also think that this is a “soft landing,” but there are 3 Fed members who must step away from the crack pipe. Yellen, Fisher, and Lacker. (Aka, Larry, Moe, and Curly.) If they keep seeing pink elephants, bugs crawling on their arms, and signs of inflation, they need to be admitted to Betty Ford ASAP.
Fortunately, I think only Lacker is a voting member.
I think I’m seriously out of my leagure here but I wanted to share this unoriginal idea.
Concerning the current state of the markets, the consumer is irrelevant because hedge funds and other institutional money are still churning their commodity dollars back into equities.
Is that still a plausible scenario for this recent run-up? If so, is there any mathematical way to calculate the dollar churn out of commodities and when the current churn into equities (specifically large-cap) will peak?
BR, I think it’s obvious that the economy has slowed down… but where does it go from here? Maybe the stock market is pricing in increased economic activity down the road.
ja, no it isn’t. Auto’s being down than some pansy .8 increase is a bigger deal.
Remember one thing, no matter how much “ex” you use, when the GDP gets computed, if it ain’t sold, it ain’t there (though a bit does come back from deflating gasoline…).
If NOMINAL retails sales “all inclusive” are not growing, there’s a good chance REAL GDP isn’t growing either.
From the Fed minutes:
“Thus far, the drop in housing market activity appeared not to have spilled over significantly to other sectors of the economy.”
Lets see what the helicopter is saying…. we have been able to initiate a bubble in equities and treasuries that has so far negated the collapse of the bubble we made in housing.
“…….but there are 3 Fed members who must step away from the crack pipe”
I would say there are at least three and not necessarily the ones cited.
Given the bubble in equities they are creating, I would have thought the retail sales pop would be much higher. This economy is a lot closer to the edge than I realized.
“Oh, I also think that this is a “soft landing,” but there are 3 Fed members who must step away from the crack pipe.”
Actually, there are 5 (five) Fed officials who feel that current “the Fed will cut rates” party is premature.
Just thought you might want to know it, just in case.
” Oct. 13 (Bloomberg) — Federal Reserve Bank of Chicago President Michael Moskow said central bankers may need more rate increases to curb inflation, bringing to five the number of Fed officials since Oct. 4 who have played down a possible rate cut.
“Some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time,” Moskow said yesterday in a speech at the Four Seasons Hotel in Chicago. ”
ja: “so my retail sales are down .4%, but i really spent .8% more.”
“$1000 last month’ and “this month i spend $996”
Since when $996 is more than $1000????
You have spent less and US consumers have spent less no matter how the data is twisted but $996 is less than $1000!
How I lost a million dollars, lessons learned?
Total bullshit since I never had a million to lose, but now that I’ve got your attention :)
I really have been pondering my investment performance since March and maybe some of you have as well. Belay that, I know most of you have. In CorporateSpeak and CorporateMilitarySpeak, the process is called “Lessons Learned;” in the South, we call it “Who the Hell Coldcocked Me?” So…
_I took macro-short positions in March via Sept SPY puts which went red into April, but had modest exposure. My other stuff was neutral overall.
_That position was prompted by a belief that there were too many bad macro things going on to sustain the market and it worked fine in May.
_At that point I loaded up on SPY, DIA and QQQQ puts and did very well, even managing to dump them on the morning that things bounced up in June. So far, I am a genius.
_I stayed away until July and then concluded that the recent bounce was absurd in the face of macro data. I went back in and made a quick but nice profit with puts.
_But (here it comes) then I completely ignored all discipline and returned again not just risking the profits I’d already made, but twice as much. That worked fine for about two days.
_So then I decided that the thing to do was pile on while the bulls were at their most vulnerable in an upswing and raised the stakes by 20%.
_As time went on and the lunatic bulls did not run for the hills as expected, I ignored the sell signal at $SPX 1280 because I was quite confident that the CW that there would be a drop in May followed by an October low was dead on. After all, the first part worked out well.
_Of course the drop never happened despite data that should have triggered it. Eventually, I bought near calls in QQQQ and DIA to stabilize my NAV.
_I scaled back my puts considerably this week because it is obvious that things are going to go up at least thru the elections. You can attribute that to performance anxiety or election anxiety, but it is apparent that whoever is pulling the levers is able and willing to ignore what is going on in the economy in order to push things up. I cannot fight that by myself.
_The important lesson is that even tho I fancy myself a technical analyst of sorts, none of my actual trades were based on technical analysis- every single one was based on either my macro-analysis or pure impulse. If I had been living by the chart, I would have made (less) money during May/June and not lost any money since then. Lack of discipline = Lost money
_Do I blame BR for this? Not at all. I am a big boy and make my own decisions. Did this blog become too subject to groupthink? Maybe, but it doesn’t really matter if markets are being shoved around artificially does it?
So my answer to “Who coldcocked me?” is I did. Fortunately, I had defined (if somewhat excessive) risk, so I will be around for the next chapter and have blood in my eye for the bulls. But I will be watching charts instead of assuming too much market rationality next time. In the interim, I am going to focus on delta neutral straddles/strangles until the charts say it is time to get vengeance. :)
BDG123, that gets my vote for “Comment of the Day.” Across the entire blogosphere. Thanks – you made my day.
:-D
Posted by: semper fubar | Oct 13, 2006 1:42:10 PM
—————————————————-
I second that motion!
“BDG123, that gets my vote for “Comment of the Day.” Across the entire blogosphere. Thanks – you made my day.”
Agreed, nobody can’t rant like B and still be taken seriously. Impressive rhetoric.
I am baffled by the rise in these markets. Some here are confused but I am really confused. Every damn day this market rises and more bulls say dow 13,000 is on its way. Everytime i turn on CNBC all i hear is how drop in oil and gas prices is contributing to consumer spending… When the hell is the “consumer” going to wake up and start putting away for retirement. The savings in America is very bad. There actually is no savings rate. We are taught to spend and that spending is a good thing to keep the economy going. The economy has to slow down once in a while but this whole talk of a “soft landing” is pissing me off. Cnbc every day talks about the goldilocks economy. I think these markets are moving up ahead of elections and that after a selloff should appear. These markets have gone straight up since early August. I think a pullback is coming sooner than later. IF oil rises back to 70+ and gas at pumps back to 3+ expect a drop in the indices. They are predicitng Xmas sales of 4-6%.
any of you people traders? look at the 10 year reaction and tell me that was a soft report.
gas prices exaggerate retail sales to the upside AND to the downside. all i said is if you want a cleaner read on retail sales every month, look at retail sales ex-auto, ex-gas. barry is bearish and interpreted the data to fit his stance, that is what economists do. in my world, as a bund and 10 year trader, the only opinion that matters is the markets and it said strong.
So much time and space has been spent discussing the effect of gasoline and so little about the effect of rising long end yields, which beats commonsense since US is the largest DEBTOR NATION in the world. Let’s face the facts.An average 3 member american household carries a debt of 100,000 dollars and rising every day.If such debt is used for productive use such as technological R&D that can give a higher rate of return in future than present interest rate cost one would understand such profligacy.But we know where all that borrowed money is going.So the typical household balance sheet is getting bad to worse.Consumer spending is 70% of GDP as per BLS statistics.Rising yields means higher interest payment , hence less money for spending , hence economic slowdown and possibly recession.That’s why when GLD put a solid bottom last week I was wondering how come such an important development received so few attention.Does any one out their chattering about a possible top in bonds and a bottom in yields.If they are I have’t heard of it.Increasingly a super hard landing and run away inflation ( due to super loose credit growth ) scanario looks much more likely.
Stock market hasn’t yet bought into this theory, or so it may seem now? But we will see, as we will do well to remember it seldom looks ugly at the top.
jagmohan I think your right about the debt this nation has. Its truly not understood on wallstreet though. The savings in america is actually -0.5. There is NO SAVINGS in this nation. I continue to read report after report about this goldilocks economy. Makes me angry.
I think everyone is prediciting more of chance of a softlanding rather than a hardlanding. Only reason why I lean towards a hardlanding is due to the housing sector which now for some reason many say may be looking better for 2007. I dont buy it. I think foreclosures are going jump dramtically in 2007 leading to a recession and loss of jobs. These new highs on the Dow are throwing to many people to think the economy is just perfect when in reality it isnt.
jagmohan I think your right about the debt this nation has. Its truly not understood on wallstreet though. The savings in america is actually -0.5. There is NO SAVINGS in this nation. I continue to read report after report about this goldilocks economy. Makes me angry.
I think everyone is prediciting more of chance of a softlanding rather than a hardlanding. Only reason why I lean towards a hardlanding is due to the housing sector which now for some reason many say may be looking better for 2007. I dont buy it. I think foreclosures are going jump dramtically in 2007 leading to a recession and loss of jobs. These new highs on the Dow are throwing to many people to think the economy is just perfect when in reality it isnt.