Retail Sales and Unemployment: There Are No Green Shoots

Notice the language here:

NEW YORK (AP) -- Escalating job worries and rainy weather dampened shoppers' appetite for buying summer staples like shorts and dresses, resulting in sharp sales declines for many merchants.

Dampened appetite?

Bah.

Here's a reality check - consumer credit capacity has hit the wall.

I noted this over a year ago, and started yelling about it. The shift of consumer spending to credit cards - the highest-interest means of financing payment - became apparent in the consumer credit report about that time.

This marked the final desperate attempt to keep spending beyond our means by the average American sheeple, and it was doomed to failure.

Now the failure is evident in consumer spending numbers across the board - including at bargain outlets like COSTCO.

Walmart (WMT) stopped reporting their numbers. Gee, do you have to wonder why? They've got one of the best internal systems in existence for tracking who's spending and how much on what. In the months leading up to their cessation of reporting the shift to "necessary" items (e.g. food) was obvious in their reports.

Its against the law to lie, but nobody says you have to report this at all, so Walmart took the "easy way out" and simply stopped talking, rather than expose the truth where people could see it.

That doesn't change what the truth is, of course.

The obvious next question is what the impact on GDP is when retailers are reporting 6-10% declines in retail sales numbers, we have a ~30%ish drop in vehicle sales rates expected on a permanent basis by the automakers, and every indication is that a similar contraction is showing up in virtually every area of discretionary spending. Remember, when consumers spend less producers need to produce less, which means more people get laid off up and down the line - from production to sales to management - which of course causes an even larger drop in consumer spending.

"What is a 20% or more decline in GDP, Alex?"

Thursday morning the market spiked based on the "better than expected unemployment numbers"; initial jobless claims 565,000 instead of 603,000 expected.

But let's not forget that this is still a half-million people who filed unemployment last week, never mind that Friday was the "legal" July 4th holiday and the unemployment offices were closed!

So we had a 4 day week instead of a 5 day one, and yet people jump up and down and scream "green shoots!"

Someone needs to remind people that when you remove 20% of the reportable days from a week, you shrink the reportable number by 20% or so too (less whatever behavioral shift has people showing up the previous day.)

Rick Santelli threw the appropriate amount of cold water on this report, given that continuing claims are now up to 6.88 million - up more than 170,000 over estimates!

As I have repeatedly said, continuing claims are what count - it is not whether you lose your job, it is whether you can find a new one. If the answer is no, the continuing claims number will continue to ramp even though the "initial claims" number comes down.

The answer is "no" to the question of "if you get laid off, can you find a new job."

Don't listen to the fools - there is no "green shoot" in that report.

Comments

[ain't no fortunate son]

Actually, I'd take it one step further - continuing claims doesn't include discontinued claims, as in, your benefits ran out. Your government then decides "out of site, out of mind," and a couple hundred thousand more unemployed slip noiselessly off the rolls. And these are the most desperate, the most devastated, the most hopeless in our new 21st century American economic shadowland.

So consider a better unemployment figure (U-6), and then consider the impending affects of the upcoming wave of Option Arms/Alt-A resets/recasts, CRE (have you seen some of the prices being paid to take over the paper on big commercial properties - down 50-60% off what was paid for those properties in '06, '07?), the cumulative effect of ALL asset classes falling in tandem, a vortex that just keeps feeding on itself.

More unemployment begets more delinquencies/foreclos... begets less consumer spending begets more asset deflation begets more bank losses (deferred of course as they wait for the sugar plum fairy to bail them out) begets no velocity of money begets more economic weakness begets more unemployment begets more delinquencies/foreclos...

2009 Jul 09 12:16 PM

[John Erad]

All the green shoots are really pond scum.
I'm in Michigan where the true unemployment rate is closer
to 20 percent not 14.

2009 Jul 09 12:57 PM

[nobby73]

I see the economy reality on main street getting further and further away from the spin on Wall Street and Washington. They are going to keep telling us the situation is under control, the economy will rebound. However, it doesn't matter how strong the foreign appetite for government debt appears to be, or how bouyant the equity markets, if people have no jobs, no money and too much debt, they can't spend their way out of the recession.

2009 Jul 09 12:59 PM

[Mad Hedge Fund Trader]

More like mold. There’s another great Chart of the Day from Clusterstock showing that we have fallen back to 2000 levels of total employment. Only one out of 2.4 Americans now has a job. Stocks, real estate, and many other asset classes have also given up the decade’s gains. In the meantime, the US population has grown by 26 million to 307 million. Has the 21st century happen yet?

2009 Jul 09 03:47 PM

[tobi]

I have started to stop caring about what news really show and instead of what the market will think of them and react. Todays market movers was simply the financial jerk circle of upgrading GS and thus get your own share price ahead also. However the market is a lot more doubtful and it makes me sick to see still how for example Eon in Germany with a conservative EPS of 8.3 and a div yield of wide over 6% get's hammered while junk companies drive the up days. Individual indexes do not even have an own life anymore, the Dax mirrors the minute to minute movements of the various american quotes exactly. Only Asia now seems to have markets with own life and moving stories. The Alcoa results gave me a great cheer today thinking of all the people yesterday predicting a short squeeze and a closing price of 13 today. It's another indicator the market more and more takes earnings what they are really worth and do not buy the "China will safe our company" bogus. The 0.26 were a joke, what really matters is what they really lost, which was closer to 50 ct and their nonexistent positive outlook.

2009 Jul 09 05:00 PM

[437339]

Great article . MadhedgeF---Clusterstock is a great site !
I was just talking to one of my neighbors in North metro Atlanta , Homes are selling here for less than 1/2 of previous market value . Lots of homes on market for well over 3 years . Green shoots ? Merely more Gubment BS !

2009 Jul 09 10:34 PM