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A Dead Cat Bounce Is Not “Recovery”

The reported rise in retail sales yesterday had the media had in a full throated bull chorale. Boomberg breathlessly screamed:

Gains in U.S. Retail Sales Ease Concern Recovery Will Cool!!! OhmyGOD!

U.S. Stocks Extend Global Rally on Retail Sales!!! BUY STOCKS NOW BEFORE ITS TOO LATE!!!

and Marketipwatch blared Bernanke Says There Will Be Growth in the Spring

But as usual it’s all hype, little substance. A dead cat bounce is not a recovery. The “recovery” the pundits are talking about is little more than a semantic game. Bernanke sounds more like Chauncey Gardener every day. If this is recovery it must be just like the “recovery” that took place in the 4th quarter of 1929 and first quarter of 1930. Some numbers did come off their lows at that time, but they were still massively below the levels of 18 months prior. We know what came after.

ChicagoBear, one of the sharp eyed reporters on Capitalstool.com’s Stool Pigeons Wire reported this morning:

Did anybody catch the September revision to retail sales? While Wall St. is getting all lubed-up over the 1.37% increase in October, they revised September down to a -2.29% decline from the -1.49% decline originally reported. WTF? These numbers are garbage! They either borrowed from September to pad October, or October’s number could also be revised down next month by over -.75%. Either way, retail sales are nothing to cheer about.

Ah, the games people play now! So there really wasn’t much of a gain after all. So what’s the big picture here? What the hell really is going on? Are retail sales recovering or is all this talk just more semantic manipulation by propagandists in the government financial media ministries ?

When in doubt, as always, I resort to my trusty charts. Gummit statistics become so much more meaningful when you draw pictures. And no seasonal adjustment manipulation please! Here’s what retail sales look like over the past 18 years with a one year moving average and a one year rate of change.

Click to view full size
Click to view full size

What does it mean? First, retail sales are about 3.3% above the low set last December but, alas, still 1.74% below a year ago. Since they’re off the lows, in economist speak, yes indeed Virginia, there is a “recovery.” And considering that we’re still 7.7% below the December 2007 peak, in a nation with a couple percent more people, then normal folks with a little common sense (that rules out economists) would look the government media propagandists in the eye and say, “I know recoveries. They’re friends of mine, and this, sir, is no recovery!”

Here’s a little more grist for the mill. Retail sales constitute only a portion of consumer spending. Services make up more than half of consumer spending according to Briefing.com. So how do we get a real time, or near real time, picture of how the consumption economy is really doing? In my regular reports to subscribers of the Wall Street Examiner Professional Edition Fed Report, I track the Federal government’s tax receipts. That measures mostly wage taxes, as well as quarterly income taxes from the self employed and corporations. It’s the flip side of spending because it is a measure of the income which supports the spending. The best thing about it is that it is available on a daily basis with only a 2 day delay from the US Treasury. It’s a much more reliable indicator of economic strength than these tiny, oft revised, surveys that purport to represent the whole economy.

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We watched in horror throughout October as total federal tax collections went off a cliff. At the end of the month they had dropped 18% on a year over year basis. This was the worst performance of any month where there were no quarterly income taxes due since this Depression began. Only the months which included quarterly corporate and self employed income taxes were worse. Under the circumstances, it simply does not make sense that retail sales would have improved that much in October.

Just to be sure I wasn’t missing something, I drilled a little deeper on the Treasury’s monthly cash flow statement to the line items directly connected to our W-2’s. Combined FWT/FICA withholding fell 3.5% from September to October. In light of that, the propaganda ministry’s report on retail sales isn’t credible.

Over the weekend, John Mauldin’s missive was making the rounds where he too commented that based on sales tax receipts from his home state of Texas and other places, the signs of improvement in the retail environment were questionable.

Once again, my curiosity was piqued, so I dug around and came up with the most recent data on state and local tax collections for the entire US of A. It’s deep in the Propaganda Ministry’s data storage network on the web. You can find it via a search of the Census Bureau if you care to look. I know you care, and I certainly cared, but Wall Street and the financial infomercial media do not care. Or maybe they do care, and they just don’t want you to know. None of the mainstream opinion shapers ever talk about this stuff. They’d rather be wrong and keep you in the dark as well, as long as their handlers keep their big fat paychecks coming.

Unfortunately, we’re the ones writing those checks, but I won’t editorialize here. What I want is the facts, just the facts, M’am.

For your viewing pleasure, here are the facts in a nice clear picture, for which no words are necessary.

Click to view full size

You may argue that this data is only through the second quarter. Maybe things have gotten better since then. Unfortunately we don’t yet have data for all the states and localities for the third quarter, but we do have the Federal data, and it’s catastrophic. No wonder our Dear Leader is bowing to anyone and everyone in the Far East who might have a few dollars to lend us, which we will gladly pay them back on Tuesday.

We also have state data for selected states through September. One of my faves is Florida, where I’m happy to spend the winter in the Happy Acres Retirement Condo Community, hanging around the shuffleboard court complaining about the crappy economy with the other old people. Florida’s monthly state sales tax receipts dropped by 3.4% between the end of Q2 and October. That’s in four months! I’ll do you a favor and not annualize that. But it seems that the downturn we see at the end of the above chart is still under way.

Florida has not picked up the slack in other taxes. Total tax receipts were down 11% over the past 4 months.

I also looked at the 3 largest states, Cali, Texas, and NY. Data was available for Texas through October and for the other two through September. Texas’s sales tax revenues have dropped by 3.4% since the end of Q2 where the above chart ends. No recovery there. In Cali, sales taxes are down by 22% and total taxes have dropped by 29%. That’s even worse than last year in the same period. California is apparently disintegrating. It’s like one of those disaster movies where all the buildings are falling down and people are running away in every direction. How fitting that Shvartzeneggar is sitting in the governor’s chair. He won’t be back.

Finally, in New York, total taxes fell by 3.1%, but sales taxes rose by 6.9%! Ah, finally, a green shoot? Nope. The state raised the sales tax in New York City which has 40% of the state’s population. Alas, no sign of recovery there either. Tell me how Governor Patterson is going to see his way out of this mess?

So were retail sales really up in October? It’s doubtful. None of the tax data supports it. In the two states where there was data for October, Texas showed an increase in sales tax of 3.1% from September, and Florida showed a decline of 4.6%. Call it a draw. Texas is a little bigger than Florida. Data from the state controller’s office in California showed a complete collapse in October tax collections. I suspect that had something to do with the timing of collections in that state. So I’ll discount that.

When it comes to the data, I’ll trust the Federal and state sales tax data. They show no sign of recovery.

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5 Comments

  1. Steve Ovits

    Thanks for this work. I’m not sure what to make of the 4 month moving average in quarterly state and local tax revenues. The chart moves through an M shape roughly evey year from the beginning of the chart. Taking a 4 months average now captures only the bottoming part of the first leg of the M. At first I thought this might make the average too negative, and maybe a longer time frame wa needed for this average. Then it dawned on me that we’re only in the second short upleg of this M, and haven’t yet started the other large down leg. If the 20 year M trend continues, that’s one very deep M.

  2. Lee Adler

    Hi Steve-

    The charts are quarterly, not monthly. That’s a one year moving average. That should make your analysis easier. I think the Rate of Change indicator tells the story of the magnitude of this collapse. This is the first time in 20 years that tax collections have shrank by more than 3% year to year, and that happened only once and it lasted for only a quarter or two. We are looking at Depression level declines. Here. If you look at the arrow on the top chart, that year to year drop, and the downturn in the 1 year moving average are unprecedented.

  3. Steve Ovits

    Ah! It makes more sense now. There’s not much time left to ride up the second part of the M, and it looks like a long way down from there. That long term trend line is at about 250,000, which is about how long the trailing part of the Ms are.

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