The economic reports continue to show an overall rate of deterioration in economic activity down to levels – in general – comparable with the 2008-2010 period. Freight transportation activity is part of the “nerve center” of the economic system. The latest data from Cass shows a rapid decline in both freight shipments and expenditures that began in mid-2014:
As you can see, expenditures plunged 10.1% year over year. North American freight shipments reflect all economic activity at all levels of the economic system across a broad spectrum of industries.
Retail sales reports going back to December 2014 are signalling economic stress at the household level: “During normal economic times, annual real growth in Retail Sales at or below 2.0% signals an imminent recession. That signal basically has been in play from December 2014, based on industrial production, retail sales and other indicators), suggesting a deepening, broad economic downturn” (John Williams, Shadowstats.com)
This financial stress at the household level is beginning to show up in credit delinquencies and defaults. Last Tuesday Synchrony Financial reported an unexpected spike in its credit card charge-off rates: Rising Credit Card Defaults. As I’ve detailed in prior posts, auto loan delinquencies and defaults are beginning to accelerate. I’ve covered a couple of credit and credit-related companies in my Short Seller’s Journal , one of which is down 18% since I featured it on March 20th. This is a remarkable fact given that the S&P 500 is up 1.5% in the same time-frame. When the stock market rolls over, this stock will drop at least 50%.
Although the latest retail sales report last week showed a small gain month over month, the unexpected gain was fueled almost entirely by the rise in gasoline prices. The Government CPI report does not show much inflation, because the Government goes out of its way to not measure inflation.
The Government’s methodologies used to hide real inflation have been dissected ad nauseum by this blog and many others over the years. Instead, I wanted to share a write-up a friend and colleague of mine sent me which elegantly describes the truth about inflation and Obamacare and the affect both are having on the average American household:
There’s a huge disconnect between the Government CPI report and true inflation. May wholesale gas prices were flat while the Commerce Dept reported that May gasoline sales for retail sales purposes went up 2.1%. Implies 2% usage higher which might tie in with how, with lower gas prices earlier this year there was the shift to the lower mileage bigger vehicles, or could be more driving.
However, April gas prices according to CPI were up 8.1% but wholesale prices were up more like 14% in April. So the CPI price increase is 57% of the futures price increase. Apply the “lower inflation” to revenues driven by inflation and that’s how GDP gets overstated.
There a lot of moving pieces in the data charade. CPI is reported later this week (June 16th) and it will be interesting to see whats reported for gas. I looked at this a few years ago and found stark inconsistencies between the price level used by the Government in its CPI index vs wholesale gas prices, which are futures based.
The other issue is in food. This is where the CPI index substitution comes into play that John Williams (Shadowstats.com) talks about. My own index includes “outside skirt steak” which is approaching $20 a pound, where I used to pay $5-7 a pound a few years back. So we actually bought/substituted rib eyes at 10 bucks a pound. From an inflation perspective, if that got into the counting, I reduced my inflation by 50% (we later bought hamburger meat at Sams for 2.79 a pound so in the month we cut out our personal CPI on meat by 85%-although we moved to lower quality products). Another issue was cereal–which I used to buy regularly at Walmart early this year at $2.50 a box and it’s now $3.30 a box (32% price inflation).
So, what’s the point?
The point is that there is getting to be some serious inflation in food and somehow its not showing up in the Govt data. In addition, with all the variability with sales and type of stores and how the GDP, Jobs or CPI surveys are created–less than scientific, the government can drive whatever reporting outcome it wants and it’s virtually impossible for anybody to follow.
Regardless of how gasoline pricing is showing up for various Govt reports, between the higher cost of gas and food, and lower earnings in general, people are getting more and more stretched especially as healthcare, education and housing costs go much higher.
This latest retail sales report did confirm home improvement is now declining (big ticket items and durable goods), which had been one of the few bright spots in retail. I am also guessing that there is a shift in overall spending to necessities. The huge increases in Healthcare premiums is pretty significant for a family along with co-pays and deductibles. Practically speaking the middle class is getting attacked. There are not enough ultra-high income earners who can carry the economy.
The S&P 500 made another failed run at an all-time high earlier this month. If the Fed was not aggressively preventing any down-side momentum from gripping the stock market, there would like be a stock market crash.
The U.S. financial and economic system is inching toward an abyss that is much deeper and darker than the abyss into which it plunged in 2008.