Retail Sales Are Now Getting Hit

Warren Buffet was on Fox Biz being interviewed by Liz “Fire Bush” Klayman today.  I guess she must be his new babe.  He said that if he were in charge of the Fed, he would not raise interest rates.  We can take that to mean that the Fed won’t budge once again next week…

The stock market didn’t start getting spanked until August 19th.   That means Wall Street’s financial goon squad or the White House thugs can’t blame a decline in retail spending in August on China.

The first indicator was in early August, when the NY Fed released its survey of household spending expectations.  Here’s what that looked like, courtesy of Zerohedge:

Household Spending Expectations

Consumers reported that they expected to increase their spending by just 3.5% in the next year, the lowest reading in the history of this particular data series.

It should have come as no surprise, then, when Gallup released its August consumer spending survey this morning, which showed that daily spending in August averaged $89, which was down from both August 2014 and August 2013.  It was also the fourth month in a row of year over year spending declines:  Gallup August Consumer Spending Poll.

This finding is consistent with a report released last week from Thomson Reuters which showed that shopping mall traffic in August was much weaker than was expected, as same store mall sales declined .5%, missing  the estimate of a .2% decline.  71% of the retails surveyed missed their sales estimates.   While the author of the report did his best job of applying heavy lipstick to the pig, you can read the details here:   Weak Mall Traffic In August.

Finally, the August retail sales “picture” is confirmed by Gallup’s Weekly Economic Confidence survey, which shows that the public’s confidence in the economy has been declining quickly since February:

EconconfidenceAs Gallup describes: “Americans remain pessimistic about the outlook for the economy.”

The weekly poll hit an 11-month low last week and bounced a bit this week.  But you can see from the trend in the graph to the left that American’s confidence in the economy is rapidly eroding.

The Fed and Wall Street can say what they want about the state of the U.S. economy.  But the numbers are hard to refute.  Sure, economic data polls have margins of error or can be manipulated into reflecting misleading results – or highly misleading results, in the case of most Government-generated data series – but when you combine the data in the Gallup surveys with the actual results being reported by retailers, it’s hard to refute the truth when it’s held up to your eyes.

Of course, no one in a position to do so is willing to hold up the actual facts to the Fed or to the pundits on CNBC/Bloomberg/CNBC and hold them accountable in a public forum.  But I can guarantee one thing:   there will not be an interest rate hike in September or December (caveat:  they might implement a gratuitous hike in the discount rate, but no one borrows from the discount window anymore so it’s a meaningless gesture toward monetary policy “tightening).

Warning:  when the Fed doesn’t hike rates in September, I have no doubt that they’ll work some form of blame on China into their Orwellian FOMC minutes narrative.

7 thoughts on “Retail Sales Are Now Getting Hit

  1. If we’re going to get any liquidity to support more spending to support more trade and economic activity, I guess we should start to consider if we want to use debt based liquidity or asset based liquidity.

    Keepin it simple for the sake of all.

  2. Dave,
    Guessing what these psychopaths will do next seems a bit of a fool’s game but what I keep wondering is how they would even go about raising the fed funds rate. Mechanically they would have to remove some of the trillions of excess reserves in the system to see what would happen to the fed funds rate but to do so typically involves selling assets from their balance sheet which are typically short term treasuries. Currently I don’t believe they even own any as their ave. maturity of their holdings is in the 7-10 year time frame so if they decide to sell these won’t the entire curve steepen which would create different issues?

    Alternatively perhaps they could sell some of the ABS but not sure anyone wants it unless they are forced to buy it at par. There have been reserve repo discussions to remove reserves but not sure that is a long term solution.

    The other option they could potentially use and that I’ve seen discussed before is to use the interest rate on excess reserves as a monetary policy tool going forward so they focus on the price of reserves as opposed to the quantity. If they raise this rate by 25bps this may naturally force the fed funds rate up by the same amount and still keep the reserves “contained” if you will so there isn’t a credit orgy. The perverse thing about this is that the banks will stand to get paid even more for doing nothing as rates inevitability start to rise at some point.

    Anyway, no good options unfortunately at this point and we are completely, totally, and utterly screwed because we do not understand anything about the current monetary and banking systems upon which we are all so dependent.
    Keep up the great work as always,
    Michael

  3. I believe the next move the Fed makes will be to put pedal to the metal
    and resume QE and not in a chintzy 80 billion a month way but something
    along the line of double that amount. I mean the brainiacs running the
    Fed know in their bones that everything they have done is right and it’s
    just the amount that’s wrong so don’t anyone mention pushing on a string.

  4. There will be a rate hike next week and all the gold bugs who said “no way” will be proven wrong. But in the end they will be happy as gold will start it’s next bull market reaching new all-time highs.

      1. Long term, gold can’t lose, I agree. It may take time, however because of the perception toward gold. If rates were to go up, there would be a mad rush for dollars in the short term because of massive dollar based leverage.

        The sobering would come later., since gold represents liquidity and liquidity would be high on the market’s list. We would finally get the notion, in time, that we need to move on from “the dark side” (Yin) and “into the light” (Yang) where we can find liquidity without the encumbrance of debt and/or counter-party risk. That’s gold ….. and its movement.

        Even most gold bugs still see bullion as a store of value and/or investment, versus gold’s role in supporting economic activity (currency). We’re creatures of habit who have been mired “in the dark” for a long time.

  5. http://www.euronews.com/2015/09/08/jp-morgan-quits-open-outcry-at-london-metal-exchange
    Excerpt: “The London Metal Exchange, where traders still shout their orders as they buy and sell from a circle of red leather sofas, is set to get slightly quieter.
    JP Morgan has become the latest bank to quit “the ring” as the top category membership is known, in favour of electronic trading.”

    Dave, JPM’s exit from the LME has a familiar ring, the latest exit from one of London’s established trading venues including LBMA.
    If JPM and LME continue circling the wagons to stave off insolvency, marginal volumes and liquidity may hasten the viscious circle of insolvency. Asia’s recent, limited participation is a feint- a token gesture in this three ring circus (9 members).
    As “the West scales down it’s involvement” in the open LME outcry “in favour of electronic trading”, JPM’s quieter trading may act as alarm bells as the Fed’s top broker and banker.

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