Retail Sales Ask: "What Soft Landing?"
Let's take a quick look at the Retail Sales data, and put to rest some amusing theories about the resilience of the consumer.
The spin has been all positive since the data came out. Expectations were for a rise of 0.3%, according to a Dow Jones survey, based upon the huge drop in gasoline prices. Earlier in the week, I heard a talking head on CNBC opine he would be surprised if Sales didn't exceed that, given all the newfound cash in consumers pockets thanks to energy savings.
Surprise! Retail Sales decreased by 0.4%, according to the Commerce Department (seasonally adjusted data). August sales were revised down to a 0.1% increase from a 0.2% increase.
Now for the fun part: Retail Sales can get reported in a variety of "EXes;" Ex-Auto, and Ex-Gasoline are tow more common versions. Ex-Gas retailers, and sales were up 0.6%; Ex-autos, and sales were down 0.5%. Excluding both autos and gasoline, all other retail sales increased 0.8% in September.
What can we learn from this? Quite simply, despite the huge drop in gasoline prices, total sales were still off nearly half a percentage point in September. (I'll mercifully spare you of any further zero sum discussion).
One might have thought that, given all of the dollar savings at the pump, at least an equivalent amount of dollars would have been plowed back into the economy. Indeed, the new found energy savings could have led to a wealth effect, leading to more big ticket items -- including cars.
Nope. But taking a page from the school of inflation ex-inflation, if we remove the items that went down in sales, we can reach the conclusion that sales were not punk.
>
UPDATE: October 14, 2006 7:58am
Funny, if you go abroad, the view from afar of U.S. Retail Sales is far less enthusiastic than that of the local cheerleaders:
US: September retail sales unexpectedly down (-0.4%)
BNP Paribas, Caroline Newhouse-Cohen, Oct 13, 2006
Friday, October 13, 2006 | 10:30 AM | Permalink
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The latest data on retail sales, tax receipts, and consumer sentiment all look consistent with the soft landing scenario.
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Tracked on Oct 13, 2006 12:59:35 PM
Comments
I actually disagree with you on this one. Looking at the data without gas and autos gives you an idea of what else is going on in the world. The Gasoline decline was so steep that it skews the numbers and doesnt paint an adequate picture of what happened. Ex'ing out the gas number, in this case, is the prudent thing to do.
Posted by: DG | Oct 13, 2006 10:42:56 AM
I appreciate your confirmation of my suspicion; gas price fluctuations dominate this statistic and the interperetation of how things are going on "Main Street". Is enegry fluctuation a significant part of GDP?
Posted by: Paul Jones | Oct 13, 2006 10:49:45 AM
Aren't you assuming that new cash from lower gasoline prices have to go back into retail sales? There's other outlets for cash, investments, savings, etc.
Posted by: N N | Oct 13, 2006 11:28:44 AM
I don't see this report as either bad or as good news. US retail gasoline demand is inelastic, and we well know the consumer prefers borrowing to cutting spending when energy or housing costs rise. The year-over-year numbers still look reasonable.
While like you I expect production and consumption number to disappoint going forward, this report doesn't show it. It's data like these that keep me long index calls to stay 100% net long versus my few, cautious shorts.
Posted by: wcw | Oct 13, 2006 11:31:20 AM
You would expect bonds to rally if the numbers were weak. But bonds are selling off, at least so far. Also, the dollar looks really strong today. Fed funds futures are pricing out any easing from the Fed. I'm not saying Barry is wrong, but I can't find confirmation of his thesis in any market right now.
My concern at this point is the chance that the Fed reverts to their old habit of "finishing with a bang"; a .50 hike at this point would be fatal to this stock rally.
Posted by: Ollie | Oct 13, 2006 11:34:20 AM
C'mon, Barry, you aren't actually trying to say these numbers are bad, are you? They actually fit perfectly with the soft landing thesis. That doesn't mean that the soft landing will definitely happen, of course, as things could turn down sharply in the future, but so far consumer spending, as shown by this data, looks fine. Look at the sub-categories:
Furniture - Up .2%
Building Material/Garden - Up .6%
General Merchandise - Up 1.1%
Health/Personal care - Up .2%
Restaurants & Bars - Up 1.0%
Mail Order & Internet - Up 1.1%
Electronics & Appliances - Up .2%
Sporting Goods - Up 1.1%
Food & Beverage - Down .3%
This is bad? Even housing related areas such as Furniture and Building Material/Garden were up on the month. If the economy is already tanking, someone had better tell the American consumer. Unless something dramatic happens in the next month or so, it is looking like a good Christmas season.
Posted by: cornerkick | Oct 13, 2006 12:42:37 PM
Anyone care to predict when the VIX hits 1? :>)
Posted by: RMX | Oct 13, 2006 1:01:42 PM
Ex gas stations, purchase rose 1.0%
Online and catalog sale rose 1.1%
Dept Store sales up 1.0%
Target same store sales up 6.7%
Federated same store sales up 6.2%
Bond market selling off on the news.
Posted by: dog | Oct 13, 2006 1:01:55 PM
Ex this, ex that. Are there any Ex-wives in there? Hey the economy is great ex-housing, ex-wages, ex-autos, ex-oil, ex-xenophobia, ex-Iraqi war, ex-Bush, ex-Cheney, ex-Rumsfeld, ex-Foley, ex-fatass Hastert who appeared to let a pedophile roam free for years and prey on kids. I can't wait for the elections. I mean the 2008 elections. I'm so goddam fed up with our government and I can't ever remember feeling this way. Ever. This fanatical right wing Bible toting bullsh*t is getting on my nerves. And, while I portray a pr*ck on here, I'm actually a spiritual person so for me to say that is a major shift in sentiment. That likely means those who are died in the wool Democrats are going to be out in droves. I guess it all started when Ken Starr took $200 million of my money to prove BC got a blow job. I'm so fed up I just want to f8ing puke. I loved Reagan and actually liked Clinton. Even Bush#1 wasn't polarizing. Christ, I'd take Jimmy Carter over this. Maybe even Nixon. At least Nixon with all of his foibles knew foreign policy.
Nice *fact* based, featured blogs with the last few.
The government may be doing some short term repos but I don't believe it's anything serious because the dollar is strengthening. I expect that to continue for a lonnnnng time given we seem to be off of our dirty dollar talk with Pat Paulson in there. Btw, is he running for President again? Goddammit, I'd vote for him this time!
Posted by: BDG123 | Oct 13, 2006 1:08:44 PM
Let me make sure I understand this:
Gas prices drop by a third, and yet the American consumer spent less than the fuel savings? Us?!?
The total spending went DOWN 0.4% -- pull out the net positive sectors all you want. CONSUMERS SPENT LESS. THEY HAD MORE MONEY THANKS TO GAS AND THEY STILL SPENT LESS.
Don't argue with me about it, go leverage yourself up with some retailers! Buy Mortimer, Buy!
Posted by: Barry Ritholtz | Oct 13, 2006 1:22:40 PM
http://stockswatch.blogspot.com/2005/12/bye-bye-nasdaq-2000-hello-3000.html
Posted by: Jacob | Oct 13, 2006 1:26:57 PM
BDG123, that gets my vote for "Comment of the Day." Across the entire blogosphere. Thanks - you made my day.
:-D
Posted by: semper fubar | Oct 13, 2006 1:42:10 PM
BR,
The crowd is in a party mood and they do not want to hear anything else that might spoil the party. They will twist and distort the facts and find something to exclude to make it fit into their distorted reality.
"The masses have never thirsted after truth...Whoever can supply them with illusions is easily their master; whoever attempts to destroy their illusions is always their victim."
- Gustave Le Bon, "The Crowd" 1896
Posted by: V L | Oct 13, 2006 1:52:46 PM
Thanks. I wonder if my ex would agree. lol. I guess since I'm anal I have to say it should be dyed not died. Some type of underlying Freudian slip.
Btw, I've done a Fibonacci, accumulation, upside down, sideways, basing pattern, cup and handle, inverted economic analysis on retail and I have an upside target on AEOS of 3,000. WMT 2,000. TGT 7,000.
Posted by: Mortimer | Oct 13, 2006 1:53:05 PM
Barry,
Great interview on robtv this morning. Everybody here should go look at that one. Very smartly done. (Nice sweater, too.)
On politics, remember the great Democrat Tip O'Neill said, "All politics is local."
A lot of the global complaints of the Democrats aren't going into the voting booth with voters who have their own local issues and "their" candidates. ("Yeah, the Republicans are corrupt but, not my Republican" and "Yeah, the Democrats are corrrupt but, not my Democrat.") So it goes.
Posted by: Fred | Oct 13, 2006 2:06:25 PM
Lets see consumers save money on gasoline purchases and you still write a negative story.
The ONLY negative is the autos. If you had focused on Autos you could have written an accurate, negative, narrow minded story.
Sorry but the big picture was positive.... Wait a minute I thought this Blog was about the BIG PICTURE????
Posted by: KL2005 | Oct 13, 2006 2:10:43 PM
Gasoline miraculously down - employment revision up - housing stabilizing - stock market levitating itself up - the Fed lending money to the speculative banks to "liquify" the system -
I'll bet the SOB's are working on taking the vote away from huge gerrymandered sections of the population again.
BDG123 gets my vote and so does the opposition. We may very well need the right to bear arms in the not to distant future.
Posted by: blam | Oct 13, 2006 2:12:17 PM
VL is correcto. The only power greater than the mob is da fed, or so it seems.
So, THIS is what irrational exhuberance feels like........
I like it. I will definitely leave the ball early, but oh it's fun while it's in full swing! There isn't an ugly sister in sight!
I hope that Bernanke guy is keeping a close eye on my pumpkin......
Posted by: Craig | Oct 13, 2006 2:19:43 PM
Whoa, Barry, take it easy. We're just discussing the fate of the world economy here, there is no reason to get so excited. : )
The consumer received an effective windfall due to gas prices being lower. You seem to be saying that unless that consumer goes out and spends 100% of that windfall, it is a very bearish sign. I don't think that is correct.
Imagine if the government decided to have a one time tax rebate where every tax payer received $500. What would consumers do with that in a healthy economy? Would they immediately spend it all? Of course not. They would spend part and use part either as savings or to pay down debt. Which is, coincidentally, what they have been doing with the equity they have drawn from their homes over the past few years.
Now, if they hadn't spent any of that windfall and all of those categories had declined, that would be a bearish sign that customers are battening down for expected bad times ahead. But they did spend some and used the rest to pay down debt or add savings. And given the fears that housing had already gone over the cliff, the spending on housing related consumer goods was a very positive sign.
Outside of gasoline, almost all the categories showed growth. As for the gasoline spending being down (which accounted for the negative headline number), that is bullish since it is because of lower prices. If it had been due to fewer gallons being used, for example, that would certainly have been a bad sign. After all, if gasoline spending had soared because the price shot up, you wouldn't consider that a good sign for consumer health, would you?
A hard fall might still be coming, but this data (along with a good consumer confidence number today) shows that it isn't here yet. And unless the American consumer decides that the fall is coming and cuts back accordingly, the economy will keep chugging along, even if growth is below trend due to housing weakness. Next month's data, of course, might tell a very different story...
Posted by: cornerkick | Oct 13, 2006 2:24:06 PM
corner, I would argue that we could have a "hard fall" is probably likely but a real recession is unlikely if consumers keep on spending wildy with no real money, but untill the housing slowdown ripples through the economy. Barry's list was:
1.Soft landing
2.Hard landing(2001,1970)
3.Recession(varying levels)
4.Depression
How consumers respond to the hard landing will tell the tale. In 2001 they kept right on spending.................
Posted by: Cherry | Oct 13, 2006 2:39:26 PM
It seems to me that it makes perfect sense to exclude gas. Gas was cheaper this report than last. And the report doesn't measure gallons of gas sold, but the dollar value of those gallons. So a greater amount of product could be sold while less money changes hands.
I think everybody's looking for an answer to the question of whether the housing slowdown is hitting consumer behavior yet. The best way to answer that question is, indeed, to look at the ex-Gas number.
I think you are very right and very wrong about two things, Barry.
You are very right that a house of cards has been built out of loose money and it's going to collapse.
You are very wrong (in my humble opinion) about your recent intrerpretation of the data over the last few weeks. You seem to be emphasizing the maligned measures and their inapplicability to the current situation. But that argument doesn't hold water time after time after time.
The facts seem to indicate that the consumer is going on relatively undaunted right now. More cards are being laid on top of the already unstable house of cards. That's not the way it ought to be (in many respects), but it looks more and more like that's the way it is.
Please don't fall into the trap of selectively emphasizing certain facts the support your hypothesis. Your blog is very good at calling out others who do that and, except for the last couple of weeks, avoiding that entirely. You must be like the Buddhist and accept the reality of the world even if it causes cognitive dissonance with what you think reality ought to be.
Posted by: Sherman McCoy | Oct 13, 2006 2:49:55 PM
Vix at 10.8.
I'm opening a bottle of Chteau Le Pin Pomerol 1999 I didn't drink in 2000 since the market crashed.
Let's party like it's 1999.
Posted by: Michael C. | Oct 13, 2006 3:06:45 PM
Barry,
I would second Sherman McCoy's comment.
I agree that the intensity and duration of the current rally do not make sense. And it is precisely when things stop making sense that we are most likely to lose our objectivity.
BTW, since the rally is liquidity driven and the hedgies have all sorts of cash, where did this liquidity come from? There are two things going on right now that do not add up: as the housing fall starts to unfold, the Dow is racing upward and as the US deficits continue to expand, the dollar is rising. Could the two be related? Is money flowing into the US and bidding up equities? If so, why?
Posted by: Kevin_r | Oct 13, 2006 3:08:00 PM
I agree with Barry. It's amazing that folks don't understand the implication of last month's retail sales. Net-net they went DOWN. And let's not forget, both Aug and Jul were revised down. Q3 retail sales look to be less than Q2. AND state sales tax receipts have been trending down for several months. The message is clear and obvious, and I don't think I need to state it.
Posted by: glenn_in_MA | Oct 13, 2006 4:06:51 PM
Kevin_r - "Is money flowing into the US and bidding up equities? If so, why?"
Borrow cheap yen at low interest rates, buy US bonds and equity. Leverage gains, rinse and repeat. It works... until it doesn't.
Posted by: Estragon | Oct 13, 2006 4:18:41 PM
