Last week, we got the monthly report on consumer credit. This week, we learned of the previous month's retail sales. Both reports were abysmal. This is, of course, intuitively logical. The savings rate is rising, wages are falling, unemployment is still climbing, tax receipts are plummeting and the social aversion toward conspicuous consumption often mentioned in these pages continues to grow.
Here are some updated charts showing all of the above in pictures. Considering that consumption accounts for approximately 70% of the US economy, I have a hard time believing a month over month increase in housing starts (residential investment is 3% of economy) can be a legitimate "signal" for much of anything. But I supposed some are more inclined to drinking kool-aid than others...
The first chart is of this morning's retail sales numbers. (via Calculated Risk)
Note that household expenditures were one of Bernanke's "green shoots" that he has been talking about for the last few months. So much for that idea. The little blip on the chart will likely fade into the distance as retail sales continue to weaken throughout the year.
Next are two charts of Consumer Credit. The first is revolving and non-revolving separated. They are both below the zero line for the first time since numbers were collected. (courtesy of Econompic Data) The second shows consumer credit back to the early 40's (from Zero Hedge). We are in unchartered territory.
It is painfully obvious that the growing unemployment is taking its toll on personal consumption expenditures. Unfortunately, unemployment is still rising at a frightening pace. Analysts and pundits have been trying to use the fact that because the April nonfarm payrolls (-538,000 jobs) wasn't as bad as the previous month's (revised to -699,000 jobs), we should look to that as signs of a pending recovery. Hardly. To start, the BLS continues to add jobs (226,000 this month) via their mysterious birth/death model. The model assumes that because one business has closed, another one must open in order to satisfy demand. It doesn't matter if there is no longer demand for a certain good or service. That is impossible according to the model. The model is the ultimate microcosm of the neoclassical "General Theory of Equilibrium," which is bunk.
Additionally, April saw the addition of 60,000 government workers to carry out the census - which itself doesn't add anything to the economy. Regardless of what you heard, the employment picture is not getting any better. The chart below shows the contraction as a percentage of the workforce in comparison with other recent recessions. There is no end in sight. (hat tip Denninger for the chart)
As one would expect when jobs are being lost at the most rapid pace in 80 years, wages are falling as desperate workers accept lower pay or fewer days of work in order to save their jobs. (chart via Econompic Data)
You don't have to be a bean-counter extraordinaire in order to figure out that with the above combination, government tax receipts are going to fall off a cliff. Perhaps it would have been wise then for government budget officials to take this into consideration when making their budget projections for at least the near-term. But I suppose that gives too much credit to the ability of bureaucrats to see any potential outcome other than their own wishful thinking.
California, which by itself makes up 13% of the US economy, revealed in it's latest budget update that its sales tax receipts are down 50.8% year over year. Income tax receipts were down by 43.6%. This for a state that is already in dire straits with its budget. Following the release of the report, governor Schwarzenegger suggested he would be required to close schools, release prisoners and limit basic services in order to keep the state running. Swell. Somehow I don't think we've heard the end of this story.
One positive signal that I have referred to previously is the rising savings rate. It is rising now at the steepest rate since WWII. Neoclassical economists will disagree that this is a good sign because they believe in the twisted logic of a "paradox of thrift." They see a rising savings rate as the ultimate evil, and will go to absurd lengths to discourage this behavior. Those who practice common sense economics, on the other hand, see a rising savings rate as a positive sign because it signals the necessary accumulation of capital that is required prior to any legitimate investment in productive capacity.
It comes as no surprise to anyone looking at the above data that the consumer is retrenching. In order to conclude otherwise, one would have to selectively be looking for disconfirming data and subsequently using the stock market's meteoric rise as further confirmation. Textbook cognitive dissonance and circular-logic thinking.
From an anecdotal perspective, there is evidence abound that people are changing their consumption preferences and delaying purchases until big-ticket prices move more inline with their perceived future incomes. My weekly google search for "frugality" yielded this following article among many others:
Tulsa Couple Is Happy Being Frugal
TULSA, OK -- What a turn-around it's been. From lusting after the latest gadgets to wondering whether we'll have jobs tomorrow. The recession has changed a lot of assumptions, including the one that says we should live our lives in debt and never go without. A young Tulsa couple embraced a different outlook on life when they were living on one income with a baby on-the-way.
The baby's now here and they say their old way of spending money, money they didn't have, is gone forever.
A recession's no walk in the park for any of us. But, for Natasha and Aaron Ball, a walk in the park is part of their strategy for beating an economic bust. They've embraced bad times as a chance to get ahead. And, turned their backs on a way of life that collectively sent us off-the-tracks.
"I think the first fight we had about it was I told her we're only gonna eat out once a month and she refused. ‘No, no, no, I have to eat out once a week or twice a week,' whatever," said Aaron Ball.
"When I married my husband he was very in to frugal living and wanted me to come on-board with that and that was difficult at first, yes, very hard," said Natasha Ball.
But, not anymore. Natasha's fully on-board. In fact, she's the engineer driving the family frugality train now.
- Contracting Retail Sales
- Contracting Consumer Credit
- Falling Wages
- Rising Unemployment
- Plummeting Tax Receipts
- Rising Savings Rate
- Social Embracement of a new "Culture of Frugality"
As I said from the outset of this crisis. Bernanke and his banking buddies can make as much credit available as they want. But if there is not the desire nor the ability for consumers to borrow it, it will have no effect. He is pushing on a string. How exactly does any of this lead to inflation?
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