I'm not going to try to spin the retail sales data, since they were definitely weak in June, and below expectations. But this is a volatile series, and auto and gasoline station sales contributed significantly to the reported weakness. I offer this chart to suggest that the growth rate in sales over the past year or so has been greater than it has been over the past 10 years on average. If U.S. consumers borrowed too much and spent too much (and I know many who did), then we could be living through a time of "payback." But sales growth is still positive nonetheless. It is also the case that we are only about 5% below the peak level of sales in late 2007. A set back and an incomplete recovery to date, but certainly not the end of the world.
Retail sales are definitely "sluggish" and will likely remain so for the next decade given that the standards of living for consumers is now in sharp decline -- a more likely market leader for properity will be the financial services sector and investment banks, who are well-postured to resume international investments on their own accounts in the coming years -- my advice to investors would be to prepare for the reality of state and local austerity measures and divest from all investments that are not firmly grounded in Wall Street capital formations -- I am not sure what one might call where we are going, but the description of the environment would be Federal prosperity, with state and local depression which is likely to worsen during the early part of this decade -- retail sales are part of the local economy where depression is now evident -- smart investors will play it safe by sticking with global enterprises with strong affiliations with Wall Street and Washington -- thanks for the opportunity to comment...
ReplyDeleteI sense the Fed needs to get aggressive. Some serious quantitative easing.
ReplyDeleteDr. McKibbin-As for living standards, worker output per hour has been rising nicely for decades. I doubt lower living standards are in our future. We have a financial mess on our hands--our financial system is a house of cards.
But the real economy--farms, factories, infrastructure, education--is amazing. Productivity keeps going up. More than ever, America has become a business culture.
Right now is an ugly mess, and toss in two unfinished wars to boot. But the long run? Only gets better.
This will be a business led recovery. The consumer is still there but will not contribute in a major way until later in the recovery.
ReplyDeleteI think Doc McKibb's call for retail sales to be sluggish for the next DECADE is a bit of a stretch. Ten years is a long time and an awful lot can happen...
I agree that a decade is probably too long, but one interesting factors is the percentage of disposable income that is available, after healthcare. It has been static for nearly 8 years. Over the long term (40 years) income has risen, but over the past decade it has not once healthcare care expenses are included.
ReplyDeleteIn fact, Americans have been using the Home ATM for the past decade to maintain their living standard.
If credit is contracting and disposable income is static (as it has been for the past two years) it is hard to see how the consumer can participate in the recovery
Frozen-
ReplyDeleteYou have hit on a key point. Other nations clamp down on healhcare costs, but in ways Americans don't like--they ration and control. Euro-nations spend much lower percentages on health care than us, and get same results.
Works for them--might not for us.
I always ay, everyone becomes a greenie-weenie when the rendering plant is proposed for their neighborhood, and everyone wants the gold standard when it comes to their health care.
So, pay, pay, pay.
Frozen,
ReplyDeleteI wish this was my quote but I can't claim it.
"This recovery will be led by business, sustained and expanded later by consumers, last longer than most expect, and be largely missed by the majority of investors".
Maybe its accurate and maybe it isn't but it kinda sums up the way I'm feeling these days.
Germany, Japan, and China can keep trying to goose the US consumer but it will end with the same collapsing result.
ReplyDeletehttp://bit.ly/9Gj2fa
Trade imbalances are heading in the wrong direction. Despite Scotts joy about it, I firmly believe the cycle of selling to the US, purchasing US assets, depressing yields, and spurring more purchases will end with similar results.
A virtuous cycle of calamity...
BTW, the Fed is predicting inflation in thr 0.9 percent to 1.3 percent range for 2011.
ReplyDeleteThat's my prediction also, except I use negative numbers.
I don't know what the Fed is thinking. We are trending down, lower abnd lower below the 2 percent inflation target.
The door is wide open for gobs of stimulus.
Adding to my last, the retail sector will trail the larger economy throughout the coming decade. Keep in mind that the austerity measures that are coming will require deep layoffs of state and local workers, and sharp cuts in state and local contracting -- I suspect the capital cities of each state will do fine, but the larger local economies of each state are destined for depression. Conversely, those who have liquid savings or who work for the higher echelons of state and local governments will probably weather out the depression a bit easier, though they will no doubt be flying to New York City or overseas to do their shopping. Washington, DC is likely to do well also as Federal workers will probably not be effected by the state and local depression that is emerging. Finally, Wall Street is likely to see a resurgence as the Federal government invests its limited resources into investment banking platforms reconfigured to jump start the economy, which will likely take many years. The truth is that scarce capital is more likely to find its way into foreign investments in the developing world rather than to be sunk into the disaster of what America will become. Capital flight laws are likely to become a hot issue in Congress as this realization becomes apparent. The other change that will dampen living standards is that the government is working on plans to change the withdrawal rights from qualified retirement plans whereby withdrawals will not be permitted before the Social Security retirement age, and such withdrawals will be limited to annuitized withdrawals based on a life expectancy of 95, thus ending lump sum removals of money from retirement plans indefinitely. These changes will start with the Federal retirement program and will be subsequently replicated in state and all other qualified retirement plans, including IRA's, 401k's, and all other qualified plans. I also understand that Federal retirement plans are going to be required to maintain a minimum investment in S&P 500 companies, which will indirectly empower the government to direct capital into depressed industries and companies, including the automobile sector. Bottom line, money is going to dry up completely in local economies and people will turn to subsistence lifestyles until the depression ends probably after 2020 or 2025. But again, investors should probably head overseas now with their investments before capital flight laws take effect. Likewise, lump sum removals from retirement plans may be justified for some plan holders based on circumstances. I suspect also that the government will outlaw private gold holdings, so avoid precious metals at this point. We are in for some hard times, and everyone should be preparing for the worst, while hoping for the best -- sorry I do not have a more optimistic assessment...
ReplyDeletePS: I rely on Scott’s optimism to keep me going – he’s a joy to read on a regular basis -- we should all hope to be like him...
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ReplyDeleteSounds like Bill Gross at Pimco concurs that our standard of living is unavoidably heading down http://tinyurl.com/3a5mync .
ReplyDeleteI personally don't see how anyone looking at the debt chart in Gross's essay (which doesn't even include unfunded federal entitlements!) and the demographic facts that we face can conclude otherwise. I still think our choice is (20% headline unemployment) or really bad (50% headline unemployment), so I say lets bring on the austerity measures now and get started with bad.
Dr. McKibbin: Don't you think a viable underground market will develop for gold coins to skirt the likely anti-posession laws?
Mark, hard assets such as gold coins, jewelry, precious stones, and even guns can be very valuable during uncertain times. But, I have not fully considered alternatives. I do know that my personal business is now earning more from overseas clients than in the US. I am pondering moving my banking offshore in order to avoid default risk in the US.
ReplyDeleteThat chart can't be right -- the y axis is not logarithmic, but you have a straight line for the geometric growth series. I wish you'd correct it, because you are making an interesting point.
ReplyDeleteSpeak: you have a point—but the span of the y-axis is not very large, so converting it to log scale would not make a significant difference. In fact, I just did it to my chart and there was no appreciable difference. My point stands.
ReplyDelete