Terms of Trade in Down Under

The December quarter trade prices release saw the largest quarterly and annual increases in export prices since the current series began in the September quarter 1974, at 15.9% q/q and 54.9% y/y. Import prices were up 10.8% q/q and 21.1% y/y, the largest annual increase since the December quarter 1985. The merchandise terms of trade are up nearly 30% on a year ago.

How did Australia pull-off a further gain in the terms of trade against the backdrop of collapsing world commodity prices? The depreciation in the Australian dollar over the quarter, which supported Australian dollar commodity prices. This is a very good illustration of the role of a floating exchange rate in insulating the economy against external shocks.

- The Terms of Trade: Not Dead Yet

Report of the Day

Global Risks 2009

The Oracle with Max Keiser

The Oracle with Max Keiser

It's the Economy

“People hunkered down pretty dramatically,”

THE INDICATOR; ADVANCE MONTHLY SALES FOR RETAIL TRADE AND FOOD SERVICES
FREQUENCY: MONTHLY
ECONOMETRICS: The advance estimates are based on a subsample of the Census Bureau's full retail and food services sample. A stratified random sampling method is used to select approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms. Responding firms account for approximately 65% of the MARTS dollar volume estimate. For an explanation of the measures of sampling variability included in this report, please see the Reliability of Estimates section on the last page of this publication.

Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the lack of credit led Americans to cut back on everything from car purchases to eating out.

The 2.7 percent slump marked the sixth straight month of declines, the longest string since comparable records began in 1992, the Commerce Department said today in Washington. Labor Department data showed the global collapse in commodities caused prices of goods imported by the U.S. to fall for a fifth month.

Today’s sales figures indicate the hit to spending in the recession is even deeper than estimated, and spurred a sell-off in stocks. The loss of 2.6 million jobs and declining home and stock values are squeezing households, hurting retailers from Wal-Mart Stores Inc. to Tiffany & Co., which today said its holiday sales fell 21 percent and cut its earnings forecast.

“There is a major retrenchment going on,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “All that policy can do at this stage is cushion this. You can’t short circuit it.”

Commerce also reported that inventories at all businesses in November dropped 0.7 percent, more than economists estimated and the third straight decrease. A 1.7 percent decline in stockpiles at retailers, as furniture stores and auto dealers cut back, paced the overall slump.

-Retail Sales Decline for a Record Sixth Month

See the following Table;

TABLE 2A. ESTIMATED CHANGE IN SALES FOR RETAIL AND FOOD SERVICES, BY KIND OF BUSINESS--December 2008

Related;
Economists React: ‘Proof in Christmas Pudding’;

One sign of the extent of the pullback in consumer spending is the behavior of core retail sales, i.e., sales excluding vehicles, gasoline, and building materials. In two of the past three months, core retail sales have posted declines in excess of 1.0 percent, and even the small gain originally reported for November was revised lower. While lower gasoline prices may have freed up some extra cash for consumers, there is little to suggest that this extra cash is being spent. Other than personal care stores and “miscellaneous” retailers, sales declined in each of the major categories reported in the monthly data. We had expected at least a modest rebound in spending at nonstore retailers, i.e., catalog and online retailers, in December, reflecting that cyber Monday fell in December this year.

We’ve Only Got Government to Do the Consuming Now;

Now is not the time to try in vain to get the private sector to consume. It’s only the public sector who is in the mood to spend right now, and it’s only the public sector who can afford it. If government spending is able to “fill in for” private-sector consumption, that will be one of the best ways to marry the goals of short-term economic stimulus and longer-term economic growth. In fact, economists who are not so worried about the longer-term implications of the large amount of public-sector dissaving (deficit spending) that is now occurring, are not so worried because they’re actually counting on the private sector to step back from its consumption binge. Goldman Sachs, for example, has said they are not troubled by the implications of the surge in government borrowing in terms of America’s reliance on foreign capital, precisely because they “are optimistic that the markets will absorb this surge in government borrowing because it is matched by an even greater drop in private borrowing” such that “private sector saving will finance more than 100% of the incremental public sector dissaving” (from Goldman’s December 31, 2008 U.S. Economic Analyst newsletter).

The end of consumption

Retail Sales Collapse in December;

Although the Census Bureau reported that nominal retail sales decreased 10.2% year-over-year (retail and food services decreased 9.8%), real retail sales declined by 11.3% (on a YoY basis). This is the largest YoY decline since the Census Bureau started keeping data.

Retail Sales Fall 9.8%;

• December 2008 Sales = $343.2 billion

• December 2008 Sales down 2.7% from November and down 9.8% percent versus December 2007

• 2008 total sales (12 months of calendar year) were essentially flat — down 0.1% percent from 2007, less than the margin of error (±0.4%).

• Total sales for the October through December 2008 holiday shopping period were down 7.7% from the same period a year ago.• Retail trade sales were down 2.7 percent (±0.5%) from November 2008 and were 10.8 percent (±0.7%) below last year.

• Gasoline stations sales were down 35.5% from December 2007, and off 15.9%;

• Auto sales were down 22.4% from last year.

How did the Markets react?

Stocks Tumble as Retail Sales Report Shows Sharp Decline;

Consumer spending, which accounts for more than two-thirds of the economy, has virtually dried up since mid-September as the problems on Wall Street began to spread. With the uncertainty of jobs weighing on consumers, economists do not expect a turnaround anytime soon. The recession, which began in December 2007 and is already the longest on record, is expected to last into the second half of 2009.

Stock futures lower ahead of retail sales

Deflation exaggerates retail-sales decline

There aren't many ways to sugar coat the numbers, but I'll try. First of all, these are seasonally adjusted, which is problematic. December retail sales are the seasonal variant to end all seasonal variants. December sales weren't really 2.7 percent less than November's. Are you kidding? The holiday shopping season always makes December huge. But Census Bureau statisticians adjusted the December results so they could try to make a month-to-month comparison with November. This is fraught with difficulty and prone to error. Still, there is one way to get around seasonal-adjustment potholes: compare the numbers from December 2008 with those of December 2007. Result: Major ugliness. Year-over-year sales for December, the most important shopping month of the year, were down 9.8 percent. No way to pretty up that warthog.

Weak Retail Report Lifts Treasurys

Treasury prices rose Wednesday after a bleaker-than-expected December retail sales report that showed sales tumbled for the sixth consecutive month.

The gains were the most pronounced in the long end of the curve, with the 10- and 30-year issues outperforming.

Prices had been hovering around unchanged ahead of the data, with longer-term government debt a bit stronger, but prices shot up after the report. Data showed retail sales fell 2.7% last month, compared to the 1.2% drop expected by economists surveyed by Dow Jones. Sales excluding autos plunged 3.1%. November data were also revised down, with sales decreasing 2.1% compared to the originally reported 1.8% decline.

Weak Retail Sales Would Validate Short-term Bearish Dollar Technical Outlook

Dollar up after grim retail sales, import data

The U.S. dollar gained Wednesday against most rivals, as lower-yielding currencies benefited from reports showing retail sales in the U.S. fell more than expected and import prices declined....

Import prices fell 4.2% last month, mostly due to oil prices, the Labor Department said. See Economic Report on import prices.
"We're importing deflation, and are the first country to do so," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. Expectations that deflation will eventually hit other countries are hurting their currencies more.

The euro gained overnight, causing U.S. traders to reestablish bets in favor of the dollar ahead of the European Central Bank meeting on Thursday, Chandler said.
The euro declined to $1.3158 from $1.3187.

Dollar Weakens Versus Euro on Speculation Retail Sales Declined

Understanding LIBOR

Published each day in the UK, it is the rate at which the banks lend to each other and it influences over $150 trillion (£100 trillion) of funds worldwide.

The Libor number is compiled by putting together the estimates of the cost of borrowing from at least eight banks, and then discarding the highest and lowest of the sample to leave an average rate which then becomes the daily 'Libor Fix'.

But the figure's validity is being questioned, with critics dubbing it "the rate at which banks won't lend".

Tim Harford explains the LIBOR

How does the government figure unemployment?

Like many big reports, the Labor Department's monthly jobs report is based on data that is extrapolated from a randomly selected sample of all U.S. households, a much smaller group than the total number it seeks to determine.

For the monthly jobs report, the Labor Department contacts 60,000 households to determine the unemployment picture for the entire workforce, which consists of about 154 million Americans.

This is how almost all big surveys are done. Statistically speaking, if you're trying to get data out of a large population -- like a national presidential poll -- once you survey about 1,000 randomly selected people, you can be 95 percent confident that the answers you get are within 3 percentage points of the actual number. If you count every person, it's not a survey; it's a census. (And that is very expensive and time-consuming.)

Each month, 15,000 of the sample's households are switched out, so the 1,500 U.S. Census workers who take the labor data aren't talking to the same people each month.

Interestingly, people who are interviewed for the monthly survey are never asked: Are you employed or unemployed? If that sounds silly, it's because the agency has criteria to classify various kinds of employment: full, part-time, unemployed but looking, unemployed but not looking and so forth.

Instead, the poll-takers ask, for example: Last week, were you on a layoff from a job? Last week, did you do any work for pay or profit?

Once the data are taken, they are weighted to take into account age, race, sex and so on, to make certain the sample numbers more closely represent the general population numbers. So, for instance, if a certain 60,000-household sample contains more residents of Hispanic origin than exist in the general population, the Hispanic sample numbers are weighted downward.

Given all this, how accurate are the unemployment reports?

"A sample is not a total count and the survey may not produce the same results that would be obtained from interviewing the entire population," reads the Labor Department's Web site. "But the chances are, 90 out of 100, that the monthly estimate of unemployment from the sample is within about 230,000 of the figure obtainable from a total census.

-How the Government Tallies That Grim Jobless Rate

Related;
Worse Than the Early ’80s;

Ian Shepherdson, an economist at High Frequency Economics, called it “a terrible report.” He added that “the only possible glimmer of light is that the maximum rate of fall of payrolls is hopefully not far off.”

As is typical during a recession, employers are cutting costs mostly by laying off workers and reducing the hours of their remaining workers, rather than cutting workers’ pay rates. The average hourly pay of rank-and-file workers — who make up four-fifths of the work force — rose 3.7 percent during 2008. But the average workweek dropped to 33.3 hours, from 33.8 hours a year earlier, forcing many families to take an effective pay cut.

The unemployment rate in December rose to 7.2 percent, from 6.8 percent, and is now at its highest level in 16 years. That rate also understates the weakness of the job market, because it doesn’t count people who have given up looking for work or those working part-time even though they want full-time work.

The number of part-time workers who said they couldn’t find full-time work rose sharply again last month. More than 8 million people now fall into that category, up from 4.6 million at the end of 2007.

An alternate measure of joblessness that includes many such people rose to 13.5 percent, its highest level on record. That alternate measure has been calculated only since the early 1990s, however.

Over 8 Million Part Time Workers

After Eight Months, Landing the Job;

After searching for the last eight months, I have finally determined the next step in my professional career: I will be accepting an associate position at a boutique investment bank that specializes in restructuring and distressed M&A advisory services. The ironic part about this is that I didn’t discover the position through my own efforts. Instead, it was presented to me by an executive recruiter who had been referred through a friend and former Bear colleague. It makes me laugh when I think about it. After all the months I spent searching for a job, it actually found me! It reinforces what I’ve always thought–staying in touch with former coworkers can turn out to be one of the best resources in your arsenal of job-seeking weapons.

What’s even more interesting than how I came across the position is how perfect of a match it is for what I am looking to do. The interview process consisted of four separate rounds and spanned a couple months from start to finish. As each round progressed, not only did the interviewers get a glimpse of who I was but I also got to know a little more about them. I was able to answer what I felt were the two most important questions: Is this the type of work I want to be doing and can I see myself working with this person day in and day out?

As Bad as It Gets

The Basics of Macroeconomic Accounts

The System of Macroeconomic Accounts Statistics: An Overview

Summary: Designed to meet the basic needs of economists and statisticians, this pamphlet is unique in providing an explanation of the key principles underlying macroeconomic statistics when viewed as an integrated system. It highlights the interrelationships between the various sectors and provides a bridge linking the various macroeconomic accounts statistics-national accounts, balance of payments, government finance statistics, and monetary and financial statistics-to assist the reader in understanding the main concepts underlying these statistics. It does so by simplifying many of the concepts, explaining common features and differences, showing how the four key statistical areas harmonize, and providing examples to demonstrate the practical application and uses of the concepts within the conceptual framework. The pamphlet completely updates Pamphlet No. 29, Macroeconomic Accounts: An Overview, by Poul Hølst-Madsen, which was published in 1985.

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The blog is focused on economic indicators- explanations on what they mean and how to use them.