The headline number for retail sales today was an increase of 0.1% month to month, seasonally adjusted, which exactly met the conomic consensual sextimate of 0.1%. Here’s how Bloomberg put it.
U.S. Retail Sales Cool After Warm-Weather Spree: Economy
Retail sales rose in April at the slowest pace of the year as Americans took a break from a shopping spree induced by unseasonably warm weather in prior months and an earlier Easter holiday.
The 0.1 percent gain followed a 0.7 percent increase in March, Commerce Department figures showed today in Washington. The April advance matched the median forecast in a Bloomberg News survey.
The market was focused on other bad things today and that news certainly didn’t help. The Greek situation and the questions swirling around JPM were the focus of the malaise.
An underlying “situation,” which no one was talking about, was that the market had to settle $35 billion in net new Treasury paper today. That sucked cash out of the accounts of Primary Dealers and others who had bought that paper. The Fed was probably quickly funding that, if it hadn’t already greased the skids to counter the Greece skid. The Fed normally settles all of its monthly forward MBS purchases, usually around $30 billion worth, with the Primary Dealers around mid month. It may have sent the cash out on Monday for this round, as suggested by Monday’s big drop in Treasury yields. (I cover these issues in depth in the weekly Professional Edition Treasury updates).
But back to retail sales, we should be interested in actual volume of sales, not the inflation skewed dollar total. To get to the kernel of that, I like to look at the real, not seasonally adjusted retail sales, adjusted by top line CPI inflation (not core which normally understates the actual). Then I back out gasoline sales, which are a substantial portion of total retail sales. Gasoline sales distort total retail sales higher when gas prices are rising, when they actually act like a tax on disposable income and reduce non-gasoline sales. To get the real picture of the strength of the consumer sector or lack thereof, we must back that out. Therefore the number that I track is real, inflation adjusted sales, ex gasoline.
April is virtually always a down month for that series. This year the the month to month decline as 5.7%. That is bad. Last April the drop was only 2.7%. In April 2010 the decline was 1.6%. Even in the pits of the depression in April of 2008 and 2009, the numbers were only down by 2.2% and 0.2% respectively. The average decline for April for the past 10 years was 2.1%. Any way you slice it, this was a really bad number, far more recession-like than like a recovery. It follows on the heels of a terrible performance in March and it’s consistent with the weakness in Federal withholding tax collections in April that suggested that the US was headed back into recession.
It gets worse. The year to year gain of 0.9% was a sharp deterioration from the trend which had been running at a gain of 2.4% or better since last August. Was it just a giveback from the warm weather in February and March? Perhaps partially, but the slowing of the growth rate to below the floor rate of the last 9 months is a red flag that the economy has sharply decelerated. More government stimulus spending will not be forthcoming, so without an artificial prop such as more Fed pumping, it’s likely that the economy will sink into recession soon if it hasn’t already.
The history of the past decade suggests that stock prices won’t tank until the annual rate of change in this series goes negative. However, there were a couple of false starts in 2006 when the annual rate of change did drop below zero, but the stock market bubble persisted for another year. Once the annual rate of change went negative in early 2007, that was the beginning of the end of the bull market.
In funding its emergency direct lending programs by withdrawing funds from the Primary Dealers, the Fed made massive blunders in the second half of 2007 and in 2008 that exacerbated those negative forces. It certainly will not make those mistakes again. Instead, it’s likely to engage in yet more money printing if the economy should begin to shrink. That will be another signal for stocks to rally and the stop-start ratcheting of the economy and the markets will go on. Eventually the Fed will lose control on one of those cycles. We’ll know when eventually is at the time, when it becomes apparent that the pumping no longer works, or else it resolves into an extreme inflationary spiral. Either way, it won’t end well.
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