Unemployment, Retail Numbers Don't Add Up

We have some very contradictory numbers out there… makes me wonder which one isn’t accurate

So first we have what we all already know. Consumer credit is being pinched off. Visually, here it is: (Click charts to enlarge)

We have consumer credit shrinking at a rate not seen in most people lifetime. We also have unemployment surging as witness here:

What about the savings rate?

So, if we have more people out of work daily and less credit on a daily basis with more savings, can anyone explain how this graph is possible?

How can we be seeing a rise in retail sales (the chart is ex autos to take out the “cash for clunkers” effect). Yes, I know retail dropped like a stone last year but if we look at the unemployment and retail graph together:

This seems to run contrary to what we would think. Now, one reason could be that retail sales last year fell below a basic level. That may be true but that basic level is falling as unemployment continues to rise and credit shrinks. We should not be seeing retail sales numbers and results from the Gap (GPS) that run contrary to unemployment/credit. While unemployed folks need food and will put a basic demand level under that area, they do not need designer clothes from Gap (or others). We should not be seeing surprising upside sales results here given the above numbers.

Unless…

What if the unemployment number is not what it seems? We are always hearing how the “real rate” of unemployment is far higher than the reported numbers because of those who have “given up” and are no longer working. But what if it really isn’t? How many of us work and receive 1099’s? How many of us know whole departments of people who have been “laid off” and were rehired on a 1099 status? These workers, if they filed for unemployment would still be being counted in unemployment numbers or assumed to have “given up.” What if scores of these folks who are presumed to have “given up” are instead working as 1099 workers?

Now, of course all this is guesswork from empirical data as the exact number of 1099 workers is not available (some people get several 1099’s for different work). But, I am wondering how consumer credit can fall (people are not running up charge accounts), savings can be at decade highs and “real unemployment” can be in the 15%-20% range it is said to be, yet we can have retail sales on a steady rise.

If I had told you the above savings,credit and unemployment numbers were the current scenario out there and asked you to predict the direction of retail sales, I would find it hard to believe you would guess anywhere but down. Yet, that is not the reality.

Can anyone provide 1099 numbers?

It just doesn’t add up.

Comments

[drewriders:]

Maybe the fact that the gov't keeps extending unemployment benefits?

Nov 09 04:44 PM

[schlumpf:]

Manipulation ( retail sales ) what else ?

Nov 09 04:55 PM

[User 353732:]

It seems to me that the savings rate is perhaps both incorrect and misleading. The vast majority of increased savings are coming from a very small fraction of the households. Just as income and wealth distribution are now grotesquely misaligned with real talent, work and true value added, so the savings are misaligned.
For many there is, probably, continued dis-saving and desperation spending. Millions of people no longer seem to care about defaulting on bills and debts just as long as they can spend and live for today.
After all, when people stop paying mortgages and property taxes and continue to live rent free in a home that doesn't belong to them they do have extra cash to spend.

When millions slow pay, part pay or don't pay utility bills or rent there is also more cash to spending on instant consumption. Landlord income suffers and utilities don't care because, by regulatory coercion, good customers must pay for bad customers. To a utility revenue is recognized when the bill is sent ,not when money is received.
The spending increases may ,therefore, be real but not enduring: a last flame before death?

Nov 09 04:58 PM

[Mark Anthony:]

You asked some good questions.

Some part of the retail sales are inelastic demands. For example gasoline. You need this many gallons of gasoline to drive to and from work, and you just have to pay. There is no way to cut corner. For another example, toilet papers. I don't think any one can cut that. Haven't heard any one who stop using toilet paper and use just water. Have't heard any one who use less squares of TP each time either.

Maybe it's pent-up demand. You decide to say money, so each time you go grocery shopping you decide to buy less of the items you need. Buy a 6 roll pack of toilet paper instead of a 12 roll pack. A smaller bottle of detergent instead of a bigger one. But the consumption hasn't really gone down. So when you run out of stock you end up buying even more to re-stock.

Another explanation is the credit card industry is being screwed. As credit card companies hike rate to unbearable levels, some people may just decide to spend their cards to the max limit, and then go default on them. This too can create an artificial consumption level.

There is no way that consumers lost jobs and have less income, they are saving up more money, but managed to pay higher credit interest and also pay down the debts, too, and at the same time have the same amount of money to consume.

Nov 09 05:26 PM

[LilBob:]

I would interpret this graph to mean that the period of rapid decline in retail spending represents a period of rapid deleveraging on the part of consumers. Consumers sought to pay off their credit cards and live within their means. The steady rise we are seeing now may be the result of consumers having largely dug themselves out of debt. They are finding they have more disposable income because they have minimized their balances and are paying less out of pocket for interest. This graph is actually in line with what one would expect if you had a large group of consumers actively seeking to deleverage themselves, then resorting to a "cash and carry" mentality regarding retail purchases.

I don't wish to sound like one of those overly optimistic perma-bull types but this phenomenon is actually a very positive trend because as employment does eventually start to pick up a retail economy that is based more on cash and less on credit cards will result in less money in the hands of Too Big To Fail banks and more money for providers of goods and services.

Nov 09 06:09 PM

[steve graves:]

Nice research Todd, but your 1099 theory is up there the grassy knoll and the "missle" that hit the Pentagon. Anyone who seriously believes there are more jobs out there than official statistics would indicate (as opposed to say, fewer) is obviously huddled up in a very comfortable place far removed from the actual real world. Where there aren't.

Nov 09 06:28 PM

[Kingbruce:]

I personally do not follow charts. I am an observer, and what l have observed is also startling me. The malls are basically serving pizza slices, few people carrying packages. The sales go on and very few takers. I notice cars with new plate tickets on the rise indicating surge in replacing cars, I also notice that huge numbers of V8 engined cars up for sale daily on Craigs List. I also notice growing numbers visiting Pawn shops. Grocery prices on the rise and few lines at check out. I see restaurants over crowded.

I rest my case. Totally confusing.

Nov 10 09:55 AM

[The Dull One:]

Two possibilities I might add to the list. I understand your 1099 comments but maybe it is the cash economy/unreported income which has grown. Are more people working for cash or barter now than a year ago? Alot of those folks who are unemployed are working odd jobs when they can. If half of the 16 million of reported unemployed earned $300 ($100/mo) in unreported income, that would account for almost 1% of retail sales. This would also cause savings to be overstated. I don't know how to check this other than anecdotal observations which will not help much when it comes to your macro analysis.
I also wonder how purchases by foreigners are accounted for. Given the weakness in the dollar I would expect tourists are buying more. Our system is not closed. Also if a foreigners buys a book off of the US website of a retailer does that count as US retail sales? I also will add that Canadians are enjoying their trips south of the border more now than they did a year ago.
I hope you can use these comments to enhance your insights.

Nov 10 02:08 PM