The Big Picture

Starbucks: $2 Special

Tuesday, August 12, 2008 | 02:30 PM

I've been meaning to post something on this for a while, but today's "discount" finally did it for me.

As you may have heard, Starbucks has canned their DVDs and CDs. At a recent visit, I picked up Juno (which I have been meaning to see), and for Mrs. Big Picture I grabbed The Kite Runner -- for $7.95 each. They also had the new James Hunter CD (Official site, Amazon, NPR interview) and the latest John Mellencamp disc (Official site, Amazon) were also $8.

But the big thing that caught my eye was their $2 special. Bring your receipt in from any purchase in the am, and after 2pm any Grande Cold drink is just $2.

Value maximizers may want to go for the Iced Frappucino Double Chocolaty Chip Frappuccino Crème at $4.80 but it weighs in at 510 calories. Or, the Java Chip Frappuccino is 460 calories. I went for the Iced Caramel Macchiato, which cost less, but is practically dietetic at 230 calories.

~~~

I cannot recall Starbucks being this promotional since . . . well, ever.

Anyone else raising their promotions to move some product ?

‘The US banking system is sound…’

Tuesday, August 05, 2008 | 12:16 PM

in Consumer Spending | Economy | Retail

Well, not really.

As William Engdahl notes at Global Research in Canada, "behind the reassuring statements from Paulson and others that the "worst is over" the reality of the credit collapse since August 2007 is a deepening economic contraction."

Now, I am not in the camp that believes this will surpass the Great Depression of the 1929-1938 period. But I will note that the increasing number US department retail store closures is a bit disconcerting. Considering that consumer spending is over 70% of the US GDP, this is particularly worrisome.

Note the scale of the following store closings across America in recent weeks:

Ann Taylor closing 117 stores nationwide
Bombay Company: to close all 384 U.S.-based Bombay Company stores. Cache, a women’s retailer is closing 20 to 23 stores this year

CompUSA (CLOSED).

Disney Store owner has the right to close 98 stores.
Dillard's Inc. will close another six stores this year.

Eddie Bauer to close more stores after closing 27 stores in the first quarter

Ethan Allen Interiors: plans to close 12 of 300 stores to cut costs.

Foot Locker to close 140 stores

Gap Inc. closing 85 stores

Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world's largest home improvement store chain has ever closed a flagship store.

J. C. Penney, Lowe's and Office Depot are all scaling back

Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide

Levitz - the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.

Macy's - 9 stores closed

Movie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to the 520 locations the video rental chain closed last fall as part of bankruptcy.

Pacific Sunwear - 153 Demo stores closing

Pep Boys - 33 stores of auto parts supplier closing

Sprint Nextel - 125 retail locations to close with 4,000 employees following 5,000 layoffs last year

Talbots, J. Jill closing stores. Talbots will close all 78 of its kids and men's stores plus another 22 underperforming stores. The 22 stores will be a mix of Talbots women's and J. Jill
Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.

Wilsons the Leather Experts – closing 158 stores

Zales, Piercing Pagoda plans to close 82 stores by July 31 followed by closing another 23 underperforming stores.

I know Linens & Things just went belly up, and Steve & Barrys recently filed for bankruptcy protection and sale.

Did we miss any others?

Use the comments, and I will add them to the master list . . . .

Source:
The Real State of the US Economy: Henry Paulson has lost the control over US finance
William F. Engdahl
GlobalResearch, August 2, 2008
http://www.globalresearch.ca/index.php?context=va&aid=9728

PPI, Retail Sales

Tuesday, July 15, 2008 | 10:48 AM

in Consumer Spending | Inflation | Retail

Tax-rebate-goosed June Retail Sales rose less than forecast, up 0.1% headline and 0.8% ex-autos. Consensus was for gains of 0.4% and 1.0%. Ex-autos and gasoline sales rose 0.2%. Strip out food and beverages -- up 0.7% -- and Retail sales were flat.

In other words, despite the tax rebates, Retail ex-inflation was flat to negative. . .

PPI rose 9.2% year over year -- the highest since June 1981. It was 0.5% more than consensus expectations. Core rate was 0.2% less than expected year over year but remains elevated at 3%. This is the highest since 1991. (See charts below)

Helping suppress price gains was the decline in truck prices. Had Americans not abandoned SUVs and Pickups in such large numbers (courtesy of $4.50 gasoline), PPI would have been even worse.

PPI in the pipeline rose 2.1% month over month -- its up a brutal 14.5% year over year. Employment though fell to the lowest since July '03 and Prices Paid and Received went to new highs.

Charts via Jake

For Those About to Rock, We Have Always Low Prices*

Monday, June 09, 2008 | 08:30 PM

in Digital Media | Music | Retail

Last year, we noted that the Eagles had "Disintermediated the Major Labels" by selling the CD to consumer via Wal-Mart -- no label necessary.

How did that work out? Not too shabby: The Eagles’ double disc, “Long Road Out of Eden,” sold 711,000 copies in its first week and three million since, according to Nielsen SoundScan. Ironically, the disc is available used at Amazon ($7.98) or in MP3 format for $10.98 -- but if you want a new CD, its Wal-Mart or nothing.

Journey was another big 1970/80s band going the Wal-Mart route, with Fleetwood Mac's management now also in discussions with the big W.

Up next: Veteran rockers AC/DC. Via the WSJ, we learn:

"Wal-Mart is expected to pull out the stops to promote the AC/DC album, the band's 16th studio release, which is to come out in the fall and hasn't yet been titled. Such a push -- including prominent displays of CDs in stores and heavy advertising -- could yield blockbuster sales, in an environment in which blockbusters are increasingly rare. Columbia Chairman Steve Barnett, reached by telephone, declined to comment. Wal-Mart spokeswoman Melissa O'Brien didn't respond to requests for comment about AC/DC.

But even as it strikes novel deals with a handful of artists and labels, Wal-Mart is preparing changes in its approach to selling the vast majority of music. It is unclear what the upshot of those changes will be, but one likely scenario involves cuts in the number of music titles the chain carries.

Wal-Mart executives, frustrated by perennially declining CD sales, have been quietly exploring changes in their approach to selling music. The company has described different versions of its potential new strategy to different players in the music industry."

What's noteworthy about these deals is that they all involve dinosaurs who's best days are long behind them, going to Wal-Mart for their promotional muscle. Now if Wal-Mart cut a deal with any band that wasn't cranking out albums in the 1960s, '70s, or '80s, I might think there was something very interesting afoot. Say, a Radiohead or a Coldplay or Sarah McLachlan.

But no. The newer bands are going to the internet, rather than WAL-Mart. Their fans skew younger, and are more comfortable on line; Many of them are quite international, and domestic US sales matter less. Lastly, there is something decidely unhip about Wal-Mart that simply doesn't call out to Beck.

Sure, I love classic rock. But whgen it comes to music, I guess I am more of a long-tail, Amazon, iTunes Music Store kinda guy . . .

Previously
Eagles Disintermediate Major Labels, ITMS (November 2007)
http://bigpicture.typepad.com/comments/2007/11/eagles-direct-d.html

Related:
AC/DC To Wal-Mart
http://lefsetz.com/wordpress/index.php/archives/2008/06/09/1250/

Source:
As CDs Decline, Wal-Mart Spins Its Strategy
Chain Signs Latest Exclusive Album -- And May Cut Titles
ETHAN SMITH
WSJ, June 9, 2008; Page B1
http://online.wsj.com/article/SB121296803253355751.html

For Some Music, It Has to Be Wal-Mart and Nowhere Else
ROBERT LEVINE
NYT, June 9, 2008
http://www.nytimes.com/2008/06/09/business/media/09walmart.html

* For you young 'uns, the title refers to a 1981 AC/DC album: For Those About to Rock We Salute You

Where Your Rebate Check Goes

Friday, June 06, 2008 | 04:00 PM

in Consumer Spending | Retail

Our Friday afternoon digression comes via Mark Faber's Doom, Gloom & Boom report, this has to be the funniest thing I've read all week:
>

"The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy.

The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part, and I thank you for your help"!

>

-Eliot Spitzer (former Governor, New York)

Is eBay "Broken" ?

Thursday, May 22, 2008 | 07:30 PM

in Consumer Spending | Retail | Web/Tech

The Consumerist thinks so: They note that it is now Completely Impossible To Sell A Laptop On Ebay.

Then there is Paypal, the eBay subsidiary. Paypal may very well have the worst customer service of any major internet firm (thus bypassing Dell).

My experience trying to get changes made with them as a corporate partner was a trip into Alice in Wonderland. To say they were awful does not begin to explain it: I picture their office as filled with people walking around in big floppy shoes, huge red noses, car-pooling to the office 20 at a time in a really tiny car.

We were long EBAY earlier this year; I am glad that position is now closed.

~~~

I am curious: What are people's experiences with eBay/Paypal? Does anyone have any stories you want to share?

Go to town:

April Retail Sales

Tuesday, May 13, 2008 | 11:59 AM

in Commodities | Consumer Spending | Retail

Retail Sales were rather unimpressive: Gasoline, Groceries, Food & Beverage were up, while pretty much everything else was flat to down.

If you want to get rid of the Easter factor, compare March/April 2007 with March/April 2008.

Perhaps some chart porn might be instructive:

click for larger charts

>
Retail Sales vs. March CPI
(sales versus inflation)

courtesy of Jake
>

Retail Sales vs. Consumer Discretionary Sector

courtesy of Bespoke Group

Retail Sales Versus Past Recessions

courtesy of CEO Economic Update

What Does Boating Tell Us About the Economy?

Monday, May 12, 2008 | 06:57 AM

in Commodities | Consumer Spending | Credit | Retail

Growing up on an island, I've always been intrigued by the boating world.

Many friends and neighbors have boats, and while I've spent time sailing and powerboating, I've never owned one. Mrs. Big Picture grew up with sailboats, as both her dad and two brothers liked to sail lightnings -- affordable, family fun. I, on the other hand, don't have that out of my system.

I don't know a single boat owner who has been able to justify the costs of ownership. And yet, there is a two year waiting list at any of the local marinas for slips (but moorings are available 100 yards from our home).

Why all of this boating chatter? I am tracking two interesting data points regarding recreational products: Sales and financing. We know that Boating sales began slip as far back as Summer 2006, when Oil prices were in the $50 - $70 range. Those with existing boats, however, continue to enjoy their usage. Even with Marine gasoline at $5, its only a marginal price increase relative to their total sunk costs.

Peter Greenberg -- the TODAY’s show Travel editor -- notes the schism between two groups of boating enthusiasts: those who already own, and those who want to:

"If you already own a boat or an RV, chances are good that you're planning to put your boat in the water and you've made plans for road trips in your RV.

That would seem counterintuitive, but the numbers speak otherwise. While retail sales for recreational boating topped $39 billion in 2006 — an increase of nearly six percent from 2005 — the last two years have not been as buoyant. In 2007, the industry saw a drop of 14 percent in unit sales, and nine percent in dollar sales. And this year will be worse. In fact, at the recent Miami boat show, many new boat dealers were downright depressed. "See that brand-new boat over there?" said the president of one upscale boat manufacturer. "I've sold it four times this week."

Translation: The prospective buyers couldn't close financing."

And indeed, that is what we see from several capital lending firms that used to finance boat purchases. The most recent firm to exit the business? None other than GE Capital:

"General Electric Co's (GE) decision this week to no longer lend consumers money to buy motorhomes and boats was more bad news for the recreational vehicle and boat industry.

While the move by GE Money is likely to prompt the many other lenders in this sector to tighten credit standards and push borrowing costs higher, analysts say it won't significantly worsen the industry's admittedly dismal fundamental outlook.

Even before GE, which operates one of the country's biggest and most sophisticated finance companies, announced its intention to exit the retail RV market, rising gasoline prices, falling home values and tightening consumer credit had taken their toll on motorhome and boat sales."

File this under obscure economic indicators: Boating is (obviously) a nonessential activity. This is only one tiny aspect of the enormous US economy. But how Americans spend our leisure dollars, speaks volumes about the availability of credit, as well as the overall economy.

Stay tuned . . .

UPDATE: May 20, 2008 8:13AM

Today's NYT has an article about Repo Man:

Times Are Tough, Except in the Repo Business

Boating was traditionally the pastime of the well-off, but the long housing boom and its gusher of easy credit changed that. People refinanced their homes and used the cash for down payments on a cruiser, miniyacht or sailboat. From 2000 to 2006, retail sales for the recreational boating industry rose by more than 40 percent, to $39.5 billion, while the average loan amount more than tripled to $141,000.

Last year, as real estate faltered, the gears went into reverse. The number of boats sold fell 8 percent. Many boats are fuel hogs, and rising gasoline and diesel prices meant a weekend jaunt could cost hundreds or even thousands of dollars. Owners found they could not sell a boat for what they owed and could not refinance either.

Our Local Marina

Morgan Park, donated by J.P. Morgan

UPDATE: May 12, 2008 9:14am

On the train in this morning, I chat with Bob -- whose 42 footer is moored off of Centre Island. Bob notes that there are two boating worlds -- bigger than 100 feet, and everything else. The > 100 foot world is doing just fine, thank you. Even more amazing, there have been more 300+ footers sold over the past 3 years than in all of previous history.

Sources:
GE exit from boat lending bad, but won't sink sector
James B. Kelleher
Fri May 9, 2008 12:23pm EDT
http://www.reuters.com/article/reutersEdge/idUSN0651461020080509

WHY THE POWERBOAT INDUSTRY IS SINKING
Daniel Gross
Slate, Tuesday, July 18, 2006, at 4:55 PM ET
http://www.slate.com/id/2145890/

Even with pricey gas, travelers won’t abandon ship
Boaters and RV’ers don’t plan to retire their gas-guzzling toys this summer
Peter Greenberg
TODAYShow, 5:12 p.m. ET, Wed., May. 7, 2008
http://www.msnbc.msn.com/id/24508536/

Except at Gas Pump, Not Much Spending Going On

Saturday, April 19, 2008 | 04:00 PM

in Inflation | Retail

Today's chart porn is courtesy of the NYT's Floyd Norris:

"AMERICANS are cutting back on purchases of things they do not have to have, sending retail sales down sharply at many types of stores.

Those cutbacks, which now seem to be worse than at any time since the 1990-91 recession, are helping to slow the economy and to spur calls in Washington for more fiscal stimulus even before the government starts to send out money to most taxpayers next month.

Those checks could provide at least a temporary stimulus, but until they arrive, the slowdown in spending appears to be nationwide.

In its beige book report on economic conditions released this week, the Federal Reserve said that surveys by the 12 regional Federal Reserve banks found that “consumer spending was characterized as softening across most of the country.” The Fed said that in 10 of the 12 districts, spending on things other than cars was down, while car sales were generally reported to be flat or declining."

courtesy of NYT

Source:
Except at Gas Pump, Not Much Spending Going On
FLOYD NORRIS
NYT, April 19, 2008
http://www.nytimes.com/2008/04/19/business/19chart.html

Retail Sales Rise on Gasoline Prices

Monday, April 14, 2008 | 10:13 AM

in Consumer Spending | Economy | Inflation | Retail

Real Retail sales dropped in March, driven lower primarily by durable goods and automobiles.

Nominal sales -- non-inflation adjusted retail sales -- surprised to the upside. The 0.2% gains were due mostly to increases in essentials -- food, gasoline, and heating oil. Sales at Gasoline store were up 1.1 %, while food & beverage stores up 0.4%; nonstore retailers (home heating oil) was also strong. Outside of these basics, Consumer spending was less strong. Declines were in building materials (down 1.6%), and general merchandise (down 0.6%).

On a year-on-year basis, March Retail sales softened to +2.0% from +2.9% last month.

Bottom line: What little strength we saw last month was narrowly based, and due due to higher prices. In real terms, sales were negative. The impact of Retail Sales on Q1 GDP will be to pull it down further.

chart courtesy of Barron's Econoday

Sources:
ADVANCE MONTHLY SALES FOR RETAIL TRADE AND FOOD SERVICES FOR MARCH 2008
MONDAY, APRIL 14, 2008, AT 8:30 A.M. EDT
http://www.census.gov/marts/www/retail.html

ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES 4.14.08 .pdf
April 14 Release
http://www.census.gov/marts/www/marts_current.pdf

Related:
U.S. Retail Sales Rise on Gain in Gasoline Purchases
Bob Willis
Bloomberg, April 14 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGV74CnL6F7Y&

S&P500 Retail Sector vs Wal-Mart

Thursday, April 10, 2008 | 05:17 PM

in Retail | Technical Analysis | Trading

Early this morning, we mentioned Wal-Mart's (WMT) monthly sales data, as well as the rest of the retail sector.

Michael Panzner sends along the following chart, asking: "Does the performance of the retail sector relative to Wal-Mart's tell you something about the changing fortunes of consumers? Look at the attached chart and decide for yourself.

Chart courtesy of Bloomberg, Mike Panzner

>
Good stuff, Mike, thanks!

Same Store Sales Boosted by Inflation, Retail Slumming

Thursday, April 10, 2008 | 11:29 AM

in Consumer Spending | Data Analysis | Economy | Inflation | Retail

The monthly retail data was released this morning -- and it was none too pretty. Same-store sales dropped 0.5% for the month of March, according to the International Council of Shopping Centers (ICSC). This was the biggest decline in almost a year.

Two of the trends we have discussed over the past year are still quite evident: Food and fuel inflation, and consumers moving further down market to warehouses and discounters to save money.

Bloomberg:

"Wal-Mart Stores Inc. and Costco Wholesale Corp. said March sales rose as consumers buffeted by job losses and declining home values sought discounts on food and electronics.

Wal-Mart, the world's biggest retailer, said sales at stores open at least a year increased 0.7 percent, within its forecast, helped by grocery and flat-panel TV sales. The Bentonville, Arkansas-based company raised its first-quarter profit projection.

"The discounters, the warehouse clubs, that's who we think are going to be the winners in this retail environment,'' Joseph Feldman, an analyst with Telsey Advisory Group in New York, said today in a Bloomberg Television interview.

Thomson Financial noted that the majority of retailers that have missed expectations are blaming the Easter effect and macroeconomic conditions.

Wal-Mart (WMT) is faring better than most, reporting a 0.7% rise in same stores sales. Their sales including fuel rose 1.1%. Also selling well are health care products and fuel.

One complaint about Wal-Mart's reporting: They refuse to "ex-out" food in their monthly data. How much of the 0.7% sales (ex-fuel) was boosted by rising prices of groceries is not really known. Hence, we do not get an accurate read on how much of their monthly sales revenue is improvement, and how much is food inflation.

Previously:
Retail Follow Up (July 2007)
http://bigpicture.typepad.com/comments/2007/07/retail-follow-u.html

Source:
Slowdown biting into discretionary retail sales
William Spain
MarketWatch, 9:18 a.m. EDT April 10, 2008
http://tinyurl.com/6ysjbv

No Spring in Retailers' March Sales As Most Chains Post Weak Results
KEVIN KINGSBURY
WSJ, April 10, 2008 10:04 a.m.
http://online.wsj.com/article/SB120782589550904633.html

Wal-Mart, Costco Sales Gain as Bargains Lure Shoppers
Cotten Timberlake
Bloomberg, April 10, 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aX8HN7OwZCdk&

Shopping for the Wife's Car

Sunday, March 16, 2008 | 09:35 AM

in Consumer Spending | Economy | Retail

So Mrs. Big Picture's Bimmer comes off lease next month, and I had the "pleasure" of doing some car shopping this weekend.

Normally, I just request some dealer quotes online via Edmunds.com. Its the absolute best way to buy a car -- low bid, no haggle, order on line or phone, show up and pick it up. I've also had good experiences with Swap-a-lease. But given the present environment, I thought it might be, um, educational, to hit the dealers.

Shopping for a car with the missus is near impossible -- we are not SUV people, and I cannot really argue with her claim that most news cars are "pods" -- boring, wind tunnel designed, egg-shaped look-a-likes. Which is why she almost ended up with the BMW M Z4 Coupe -- baddass, non-orb shaped, totally impractical vehicle as her daily driver (but not a POD).

She had mentioned a number of cars over the past year, so I picked out five of 'em as a replacement for the 330i: Infiniti G35X, BMW 535xi, Altima Hybrid, Acura TL, and AWD Chrysler 300. We looked at the cars in order of proximity to the house, and which side of the street they were on, making a big loop.

Warning: Anecdotal evidence follows.

First up: Nissan Altima Hybrid: She briefly considered a Nissan Murano last year, and was intrigued with the Altima Hybrid: 42 city, 36 local, definitely a more unique car. Last year, at $32k -- about $6k over a nicely appointed one -- it made no sense whatsoever. About 7 years with gas at $5/gal before it paid off. Apparently, the rest car buying universe felt the same, as they did not sell nearly as well as the Prius -- dealers have a bunch of 2007s lying around. The same car (new 2007) can be had right now for $22k. So we drove one -- kinda odd sensation, very different from a gas engine (its a 4 cylinder). She didn't like it.

She did like the 6 cylinder, 270 HP version much better (so much for her going green). I have to get her to admit how glorious the straight 6 in the 330i is (she's spoiled by it). Oh, and I put myself on the list for the GTR -- the production run of 1,500 means most dealers will get just 1 or 2. It was also noteworthy that the Nissan dealer was rather empty.

Next up: Infiniti G35x. Handsome car (Her: its a pod!), nice dashboard, and oddly, not nearly as roomy as its downscale sister car, the Altima. Priced competitively versus the BMW, but way pricey relative to what it is: A gussied up Nissan. Mrs. BP was unimpressed. And the Infiniti dealership was so totally jammed, we never even spoke to a salesguy. That demand explains the premium price.

As we came up on the BMW dealer, she said, "Keep driving; I'd prefer something different." As much as I like the 330, it was goodbye Bavaria. The 535's twin turbo engine is terrific, but the iDrive was the deal killer for me. Talk about lousy design and engineering -- motoring by Microsoft. But its her daily driver, and if she doesn't want another BMW, I'm not going to argue.

On to Acura: The Acura TL actually had the nicest interior of all the cars we looked at: Lovely luminescent dashboard, great ergonomics, very comfortable. Downsides: Its an automatic, its a bit small, bland exterior, the 254 HP V6 engine isn't nearly as smooth as the 330. Its essentially a purtified Accord. Oh, and, there's a new version coming out in 2009. But it was far and away the nicest interior we'd been in. Their leasing terms were extremely reasonable. And the dealership was also jammed.

Finally, the only "non-pod" we looked at all day: The Chrysler 300 AWD. Its a full sized (versus mid-size) with a HUGE trunk, and tons of room inside. Gas mileage was not great. The biggest weakness was the interior -- mediocre, cheap, kinda Chrysler-like, and for a high $30s car, I expected a lot more more. Oh, and the place was mostly empty.

~~~

That was my Saturday. Missus BP is leaning towards the Acura. Meanwhile, its threatening to get nice out. Time for me to go shred some rubber off the 330i's lousy run flats . . .

Understanding What Recessions Are

Tuesday, February 19, 2008 | 06:00 AM

in Consumer Spending | Economy | Retail

One of the misunderstandings about recessions is what actually happens in the real world. A recession is where economic growth stops, and you are left with flat to contracting sales.

Note that economic activity does not grind to a halt -- the year-over-year growth rate merely slips into the negative. This is often misstated, in some variation of "Gee, how it can it be a recession -- I was out shopping and the stores were pretty crowded." Whenever you see that, the speaker is either technically misunderstanding what a recession is -- or alternatively, is painfully long and hoping for the best.

Of course, Growth may falter, not total economic activity. With the $13 trillion US economy, economic activity certainly won't fall to zero dollars. Everyone is still eating, driving to work, using electricity, phones, buying iPods, etc. If economic activity were to fall to an annual run rate of below $13 trillion dollars for a few quarters, well then there's your mild recession. If it drops much below the $12.75 - 13 trillion dollar range, that's a bit more serious contraction. Indeed, the greater the year over year contraction in economic activity, the deeper the recession.

Consider Housing: Sales don't drop from ~7m homes sold to zero; rather, the number drops significantly (i.e., 4.5m sold). It only seems like nothing after ther boom years.

But even if US activity were to drop a huge trillion dollars in a year -- thats still a $12 trillion of economic activity, and that typically involves one or two people still going shopping and out to eat occasionally.

So far, we are only at the point where Real Sales have slipped into negative year-over-year territory. High food and energy prices, as well as health care, are keeping nominal sales positive. Outside of that, we see clothing, autos, homes all negative. Consumer Technology spending, and business CapEx spending remain positive.

Indeed, while many aspects of the economy are revealing marked weakness, select areas are still hanging on. We are just as likely to be in a recession -- as not -- as of February 19th, 2008.

>
Real GDP Growth, Annualized Year over Year
Q1 1990 - Q3 2007

Source: Economagic

~~~

Note: We were out and about this past 3 day weekend (its not all linkfests); Our anecdotal expeiences are after the jump...

Continue reading "Understanding What Recessions Are"

Real Retail Sales Growth Fall to 2003 Levels

Thursday, February 14, 2008 | 06:11 AM

in Consumer Spending | Data Analysis | Economy | Inflation | Retail

Yesterday, we noted that the market "wanted" to rally, courtesy of its oversold condition. Dropping nearly 5% in the previous week does that to traders. However, there is no need to tilt against windmills -- be it Buffett's Muni bond grab or yesterday's Retail sales data. Smart investors need only look beneath the headlines, and figure out what is really going on.

Let's use the Retail sales data as an example: Census Bureau reported surprising Retail sales data for January, rising by 0.3% (versus consensus of -0.3%). We stated this reflected energy inflation, not sales growth. Some people disagreed with that assessment, so for them, we will go into the details.

Our first chart, via Mike Panzner, shows year-on-year retail sales (ex-autos). As Mike notes:

"Even that series makes the retail picture look far better than it actually is. When you subtract out gasoline station sales, which have been boosted by rising prices for fuel, the year-on-year change is 2.6%, the lowest pace since April 2003 (see attached). Indeed, gasoline station sales as a percentage of retail sales (ex-auto) recently hit a record high of 13.1% versus a median rate of 9.8% since January 1992."

The chart shows the divergment:
>

Chart courtesy of Mike Panzner

Why ex-autos? Commerce reports a 0.6% rise in car sales January, while the vehicle manufacturers themselves reported a 6.3% drop in unit sales. The FT noted this differential, quoting Rob Carnell, economist at ING Financial Markets: “There are too many other indicators pointing in the opposite direction for the rise in retail sales in January to be accepted at face value, and we would expect some of this month’s discrepancy to be unwound in the February report."

But even that is still a nominal data series. If we want to see Real Retail Sales, we need to fully adjust for the pernicious effects of inflation. Haver Analytics has done the heavy lifting for us, and as the chart below shows, Real Retail Sales fell to levels not seen in 5 years:

Chart courtesy of Haver Analytics

This is the first negative Real number this cycle. This, strongly suggests a US recession is either underway or due any month now. And that's using CPI as the inflation adjustment factor. Its well understood amongst The Big Picture readers that CPI understates inflation.

Consumers are paying more for Food and Energy, to the point that Real Retail sales are negative. What does this say about future discretionary retail spending?

Source:

Overview: Failed muni bond auctions deepen crises
Dave Shellock in London and Michael Mackenzie in New York
FT, February 13 2008 18:20
http://www.ft.com/cms/s/0/575ea158-da60-11dc-9bb9-0000779fd2ac.html

Retail Sales Show Inflation, Not Growth

Wednesday, February 13, 2008 | 10:00 AM

in Consumer Spending | Data Analysis | Retail

If you ever doubt the significance of the market's relative overbought/sold condition to news, the past two days have been quite instructive. Look at yesterday's ripper on the Buffett muni bond news (the Ambacs (ABK) of the world ended the day lower), and today's response to what was an easily parsed weak Retail Sales data show that its the environmental market conditions the news enters, and not necessarily the news itself, that matters most.

Consider:

"The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $382.9 billion, an increase of 0.3 percent (±0.5%)* from the previous month and 3.9 percent (±0.7%) above January 2007."

Not for price changes means that these are nominal -- not inflation adjusted -- numbers.

Hence, with Gasoline station sales up 23%, and non-store retailers (home oil delivery) up 10.6%, the surprise gains were all energy/inflation related.

I have to wonder about the boost in demand for cars, considering what we have heard from all the auto makers -- they almost across the board announced weaker sales. I don't know what the Commerce department is looking at, but I cannot figure how its a positive sign for the economy.

Take the Retail Sales EX Inflation (gasoline, food & beverage) and retail sales were DOWN. Excluding inflation, demand at all other retailers last month were unchanged to negative. Economically, speaking, how bullish is that?

Chart courtesy of Barron's Econoday

Sources:

ADVANCE MONTHLY SALES FOR RETAIL TRADE AND FOOD SERVICES
JANUARY 2008
WEDNESDAY, FEBRUARY 13, 2008 AT 8:30 A.M. EST
Commerce Dept, Service Sector Statistics Division
http://www.census.gov/svsd/www/retail.html

U.S. Retail Sales Unexpectedly Rose 0.3% in January
Shobhana Chandra
Bloomberg, Feb. 13 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=am.WFHwnr_5s&

Retail Heading Towards Biggest Wreck in 17 Years

Friday, January 18, 2008 | 01:30 PM

in Consumer Spending | Financial Press | Retail

Just a brief reminder: there have been numerous idiots insisting that the consumer was just fine, and this holiday season was free from problems.

As it turns out, that view is, um, slightly off:

"The retail industry appears to be skidding toward its first big wreck in 17 years.

Chains are slamming the brakes on store openings, cutting back on inventory and girding for leaner times as consumer spending chills. The speed with which sales slowed during the holidays caught even cautious retailers off-guard, prompting a flurry of profit warnings.

And while data on December consumer spending won't be released until the end of the month, plummeting sales suggest consumers are snapping shut their pocketbooks."

Please note who these data-free, reality-challenged, no-nothing money-losing pinheads are. You'll see them spouting the same bullshit next cycle, too. How wrong do you have to be before you get banned from TV?

Sources:
Retailers Sink Into the Doldrums
GARY MCWILLIAMS and AMY MERRICK
January 18, 2008; Page B1
http://online.wsj.com/article/SB120061830348699259.html

Read it here first: Fed Says Holiday Sales Disappointing

Wednesday, January 16, 2008 | 04:30 PM

in Consumer Spending | Economy | Federal Reserve | Retail

Shorter Beige Book:

"The Federal Reserve said economic activity increased "at a slower pace'' in late November and December, with districts reporting "disappointing'' holiday sales.

"Economic activity increased modestly during the survey period,'' though "at a slower pace,'' the central bank said in its regional business survey, known as the Beige Book for the color of its cover. "Most reports on retail activity indicated subdued holiday spending and further weakness in auto sales.''

The report provided anecdotal evidence the economy is slowing, a day before Fed Chairman Ben S. Bernanke is scheduled to testify on the outlook at Congress. Bernanke said last week more rate cuts "may well be necessary'' after 1 percentage point of reductions since September to buttress growth."

Of course, the Fed would have known this had they been here at The Big Picture as often as some of their staff.

>

Sources:
Summary of Commentary on Current Economic Conditions by Federal Reserve District
Federal Reserve Bank of Atlanta, January 16, 2008
http://www.federalreserve.gov/fomc/beigebook/2008/20080116/default.htm

Fed Says Economy Slowed at Year-End, With Sales `Disappointing'
Steve Matthews
Bloomberg, Jan. 16 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ3n7g1Qv.U8&

December Retail Sales

Tuesday, January 15, 2008 | 11:32 AM

in Consumer Spending | Economy | Retail

Well, as forecast, the retailers had an awful holiday season. From the Census Bureau:

"Advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $382.9 billion, a decrease of 0.4 percent (±0.7%)* from the previous month, but 4.1 percent (±0.7%) above December 2006.

Total sales for the 12 months of 2007 were up 4.2 percent (±0.4%) from 2006. Total sales for the October through December 2007 period were up 4.9 percent (±0.5%) from the same period a year ago. The October to November 2007 percent change was revised from +1.2 percent (±0.7%) to +1.0 percent (±0.2%).

Retail trade sales were down 0.4 percent (±0.7%)* from November 2007, but were 4.3 percent (±0.8%) above last year. Gasoline station sales were up 18.5 percent (±2.8%) from December 2006 and sales of nonstore retailers were up 12.1 percent (±1.8%) from last December.

Bloomberg wrote:

Sales at U.S. retailers unexpectedly fell in December, capping the weakest year since 2002. Sales dropped 0.4 percent, the first decline since June, following a revised 1 percent gain in November, the Commerce Department said today in Washington. Purchases excluding automobiles also decreased 0.4 percent.

Unexpectedly? Well, only if you believed the hype. This does not mean the end of the world is here -- gross sales were still up year-over-year. As we warned, Real inflation adjusted sales were negative.

Still, consumer spending for December was $382.9 billion -- thats a lot of money no matter how you slice it.

chart courtesy of Barron's
>
The silver lining is that sales aren't bad everywhere: the new $410,000 Rolls-Royce is sold out (more here).

Previously:
Real Holiday Spending Was Negative in 2007 http://bigpicture.typepad.com/comments/2007/12/holiday-spendin.html

Retail Sales Softer (Ignore the Surveys) http://bigpicture.typepad.com/comments/2007/12/retail-sales-so.html

More Retail Sales Hype
http://bigpicture.typepad.com/comments/2007/12/retail-sales-da.html

Sources:
ADVANCE MONTHLY SALES FOR RETAIL TRADE AND FOOD SERVICES http://www.census.gov/svsd/www/marts_current.html

U.S. Retail Sales Unexpectedly Declined in December
Bob Willis
Bloomberg, Jan. 15 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVzW9CqcO2Yg&

Eddie Lampert's Debacle at Sears

Tuesday, January 15, 2008 | 06:44 AM

in Corporate Management | Retail

This morning, the papers are rife with stories about the debacle that is Sears (SHLD).

Once America's largest retailer, it now finds itself between a rock and a hard place -- down market from Target, but not as cheap as Wal-Mart.

Jesse Eisinger's piece in Portfolio -- The Marriage From Hell -- is a must read; he calls to task the man who has been