Wednesday, January 14, 2009

“People hunkered down pretty dramatically,”

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;

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

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