Posts Tagged ‘retail sales’

Is an Economic Asteroid Coming?

Tuesday, December 1st, 2009

asteriod-impactThe question really is not whether one is coming but would they tell us if it were? In the movies when an asteroid is headed towards Earth, the government decides to keep the impending doom from its citizens to protect them from the horrible truth. Then typically about 3 days from impact, the secret of the approaching fate is revealed along with a plan to save the day. Is it possible that the US government is sugar coating the truth to protect us, shelter us?

The Chinese government is notorious for embellishing their economic numbers. Is the US government taking a page out of their red book on crowd control.

One possible sign of the potential sugar coat could be in economic data revisions. When data is released the markets react based on whether they meet, miss or exceed expectations. If a market rallies on exceeded expectations, shouldn’t that same market give back those gains if that data is revised down the following month? Most of the time the market ignores these revisions and may actually rally again if the data shows another exceeded expectation even though the data may have actually been negative.

For example; if monthly retail sales went up month over month 1.4%* then the next month they revise this number to -.4%*, but the current month over month sales went up 1.8%. Has retail sales really gone up that much? The markets probably would have rallied the 1.4%* and the 1.8%* if they exceeded expectations. But the data is misleading. Lets simplify this information by using small numbers:

Month 1: $100.00 in retail sales
Month 2: $104.00 in retail sales (1.4% improvement over the previous month)
Month 3: $107.57 in retail sales (-.4 revision plus 1.8% improvement)

*The numbers from the above example are made up and are not real.

So on the surface retail sales going up 1.8% looks good, but retail sale really only went up 1.757% over 2 months. This data becomes even more confusing if it is revised the following month.

Economic data did not predict the beginning of this financial crisis, what makes you think that it will predict the end?

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When being Positive can be Dangerous

Saturday, April 25th, 2009

The mood on Wall Street and in Washington went from a very negative outlook to a relatively positive one in a matter of months. Whether they are trying to stay upbeat or believe that the economy has made a turn, the dangers of being positive might outweigh the benefits.

When President Obama took office nearly every speech he or one of his appointees (Treasury Secretary) made was followed by a negative day on Wall Street. Outlook was grim and reality was settling in with Americans. Now the exact opposite is true, speeches appear to be carefully calculated and responses on Wall Street are more positive.

Wall Street for the most part believes the “bottom” is in. Washington believes the worst is over but we could still have some tough times ahead.

Most of the economic data that spurred the month and a half record breaking rally has started to retrench (retail sales and existing home sale). There are still more down economic data months than up which points to a negative trend.

Wall Street points out to investors that the market historically rallies over 50% after a large correction “bottoms”. The Dow Industrial average touched 6440 in February 2009, if it were to rally 50% then the Dow would be 9660. The Dow Industrial Average was closed at 9034 on January 2, 2009. This “rebound” would leave the Dow Industrial up 6.9% from the beginning of the year.

If the economic data continues to slide and the Market starts another correction, what percentage does it historically go down? It seems mostly the positive view is more statistically backed than the negative view. Being negative could save you money while the positive could make you money, what can you afford?

We are taught it is better to think of the glass as half full; but when you only have half left being negative may be the only way to keep it half full.

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A Real Economic Indicator

Wednesday, April 15th, 2009

Yesterday consumer spending started back down the path of contraction. Remember one of the major sparks for the March rally was the improved retail sales numbers. It is funny how a once very pessimistic market can turn overly optimistic in such a short period of time.


Wall Street and the US government rely heavily this economic data for their analysis of the economy and its current state. Interesting how this data did not reveal the current state of the economy sooner. A year ago very few could have predicted the current crisis and its depth. It would seem that this method of data collection is too slow in reporting present conditions (especially with the recent dramatic revisions of past reports).

The US Federal Reserve went to a tightening status to combat inflation in April 2008 based off of this type of data (which was extremely late to the relatively obvious state of increased inflation). With an already low overnight bank rate, the Federal Reserve was forced to use up its most effective tool to stimulate the economy by taking it to 0% to .25% target. The Federal Reserve has also started to rapidly expand its balance sheet using “innovative” methods to promote lending. When considering debt and leverage, there really are limits to “innovation”; debt still needs to be repaid.

What happens if the home sales numbers start to show weakness again? What happens if (when) commercial real estate write offs start to replace the consumer debt write-offs on banks balance sheets. Do we have any other weapons to throw at the problem?

Unemployment is on the rise and Americans are more interested in saving money than spending right now. The US Government is trying to cure the problem by expanding lending while the US Citizen feels the solution to their problem is to reduce their debt. Interesting how the government and its people can be on such different pages.

Consumer spending makes up 70% of the United States GDP (I would argue that without the consumer we would not have the other 30%). The US Government and Wall Street have declared the worst is over. The average consumer does not feel the worst is over as seen in the retrenchment of retail sales, continued high savings rate and decreased consumer debt. What economic indicator should we believe?

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Is This More of the Same – Speculation

Monday, April 6th, 2009

The stock market over the past month has gained over 20% on most the major averages. Matter of fact almost everything has been going up, even oil, which still is showing a dramatic reduction in demand on a weekly basis. This feverish buying has been on the heels of some financial data that has marked an improvement from analysts’ estimates.


These economic improvements have been touted by Wall Street as the beginning of the long awaited recovery. According to much of Wall Street the worst is over and the “bottom” is in. There is a population of Wall Street who feel that we have not seen the worst, but interestingly the bulls hog the air time with the financial press. (see Contrarian to Mainstream in Weeks – Stock Market for more insight)

Let’s take a look at some of this improved data:

Retail Sales:

Retail Sales

Retail Sales

Existing Home Sales:

Exisiting Home Sales

Exisiting Home Sales

Durable Goods Orders:

Durable Goods Orders

Durable Goods Orders

The above numbers helped launch the stock market averages to achieve historical gains in a short period of time. Does one month constitute a so called bottom? The data improvement was really in the month to month change. Year over year the data is still quit grim. If this is recovery then these numbers should not look back. What happens if they start to decline again? Where is the growth coming from? Has anything really changed over the past month or two?

Here is a piece of data that did not affect the market the way it probably should have:

Unemployment Rate:

Unemployment Rate:

Unemployment Rate:

Personally I feel that the “bottom” will be reached when everyone gives up on calling the bottom.

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