Conclusion: there is precious little
fundamental reason for the rupee to depreciate as it has done in 2011,
and even less reason for it to depreciate at the speed of a Ferrari. If
there are no fundamental reasons, what gives? Sentiment and
expectations. The Centre has done everything possible to sour
expectations and sentiment with regard to India. This has hurt. If this
were not enough, the RBI messed up, by talking too much and stating that
the rupee was a free floating currency. The market tested that
ridiculous assertion. The market won. The RBI had to backtrack. Central
bankers should be seen more, heard less. The rupee slide was aided and
abetted by mismanagement of the interest rate and exchange rate policy.
There is ample reason to believe that RBI is not independent, and that a
considerable portion of mismanagement might actually be attributable to
the Centre. Whatever the real cause, India is the loser.
Argentina's experience vividly illustrates the economic damage stemming from default and departure from a hard-peg currency regime. In hindsight, the IMF has recognized that it was too optimistic about Argentina's prospects. The lesson is that postponing an unavoidable debt restructuring increases the ultimate costs, and that orderly restructuring is far preferable to the chaos of unilateral default under extreme duress (see IMF 2003).
While the Greek and Argentine episodes have in common some fiscal and monetary features, they differ importantly in their exchange rate regimes. Argentina's currency board exposed the country to balance sheet mismatches and made it vulnerable to speculative attack. More importantly, both its decision to establish a currency board in the first place and later to abandon it were unilateral. Greece's use of the euro protects it from speculative attack. Moreover, its currency regime is a result of a multilateral agreement involving continental Europe's dominant economic powers. As a member of the euro area, Greece is part of an important and influential "family." It gains a measure of protection by being under the monetary authority of the European Central Bank, one of whose primary objectives is the maintenance of stability in the euro area. As recent developments show, disorder in one country can undermine the financial stability of the whole euro area, giving member countries strong incentive to back each other up. As part of the European Monetary Union, Greece gains powerful supporters that it would lose if it were to go it alone. The magnitude of Greece's debt problem is very great and is not likely to normalize quickly. So these relationships may be tested in a few years when Greece's financial assistance package is depleted.
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.
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.
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.
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).
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.
• 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%;
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.
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.
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.
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.
.png)
