January 15, 2008
BEHIND EVERY CLOUD…
The crowd was expecting a slight gain but instead found itself on the receiving end of a sharp tumble.
The consensus forecast called for a 0.1% rise in retail sales for December, according to TheStreet.com. The actual number was nowhere near that relatively sunny prediction. Retail sales crumbled by 0.4% last month, the Census Bureau reported this morning--the steepest decline since June.
The monthly change in retail sales is a volatile beast, of course, and so any one report doesn't tell you much. Indeed, November enjoyed a 1% surge, only to watch it crash and burn in December.
But there's more insight embedded in the rolling 12-month trend, and by that measure there's reason to worry. As our chart below shows, the trend is definitely not your friend of late. The strong growth that defined the 12-month change in retail sales in 2003-2006 has now been downsized to something less. Yes, there was a burst of buying last year, which gave hope to the idea that the downshift of 2006 was only temporary. But the downside momentum appears to be building.
The economic context suggests that the latest drop reflects a weary consumer. Fears that consumer spending would slow or even decline have been around for years but Joe Sixpack always managed to keep the ball rolling. Is this time different? Yes, it may be. Years of piling up debt may finally be coming back to haunt Joe. The fallout from the housing correction is one reason. Without the constant drumbeat of rising home equity to inspire consumer purchases, the prospect of buy now and pay later may have lost some of its luster.
Then there's the employment trend. Last month witnessed the weakest payroll report in four years. Meanwhile, unemployment jumped to 5.0%, the highest in over a year. Consumer spending is already under attack from the housing ills; the pressure will only build if the labor market remains weak.
Indeed, there's a name for all of this: recession. It may or may not arrive, but it's getting harder to ignore the warning signs. For some reason, the mere mention of the "R" word angers some pundits. Perhaps we're all supposed to politely look the other way. Or, maybe if we don't report on the obvious all the bad news will simply go away. But wishing away trouble doesn't have a good track record and there's zero chance it'll be effective in 2008.
In fact, business cycles are a normal part of all economies. There's even some good that may come. The prospect that Americans may start saving more, for instance, may be just what the dismal science ordered. No, the correction may not be pretty. But when the dust clears, a new era of growth will dawn.
Posted by jp at January 15, 2008 11:09 AM
This article seems exactly "how it it". Ok, how much of a part does energy have on this cutback in spending? When we were at $60 & $70 / barrel I thought it would affect the consumer differently, it didn't seem to, it seems to be the same situation so far.
Posted by: Vinnie at January 15, 2008 10:43 PM
that chart might even be a good representation of inflation the last 10 years.
Posted by: d at January 15, 2008 6:16 PM