Retail Sales Falter – Significant?
from Peter Radford
Yesterday’s report on retail sales in the US is one of those we all have to squint at in order to get a good understanding of its importance. On its face the news was not good: sales fell 0.2% in May. That was the first decline in eleven months and so it marks the end of a steady upward climb. To put that into perspective retail sales in May were 7.7% higher than a year ago. But a decline within a supposed recovery is never a strong sign, and coming, as it does, alongside a string of weak to poor news we would be excused for fearing the worst.
But this time I think we should err on the side of the optimists. Not that I have had a sudden conversion to starry eyed prognosticating: far from it, I remain steadfastly in my stagnationist mode. This set of numbers, though, is skewed by the results for auto sales which we all knew had taken quite a hit in the wake of supply side issues stemming from the Japanese disaster earlier this year. If we back out those weak auto sales the remainder managed to eke out a slight increase. This very weak positive for non-auto sales fits exactly with my forecast of an economy going nowhere fast. So, in a rare show of agreement with the Wall Street optimists, I agree we should look more at the non-auto performance than the total figure for sales.
I am not saying this, of course, simply because it fits my narrative. My point is that I see nothing on the horizon that is sufficient to provide a boost to the US economy and thus lift it out of the meandering course it is currently running.
My basic analysis remains the same:
- Demand is too weak due to very poor wage increases and prolonged – debilitating – underemployment
- Fiscal policy is now shifting towards reducing growth in order to reduce debt and deficits at the Federal level; this is already the case at the lower levels of government
- We are about to shift to a more neutral monetary policy – QE2 ends this month and is not going to be replaced
- Inflation and deficit hawks have successfully prevented any discussion of further stimulus – even though today’s report on wholesale prices demonstrates clearly that those of us who decried the fears of an inflationary spiral have been completely vindicated; the recent burst of retail inflation is dying down already
- The US political malaise is now a major risk factor – anyone investing in America from abroad now has to add political risk to their worries; it is extraordinary that we have become a banana republic in terms of the quality our debate, and our ability to get things done [or, more to the point, not done]
- Our real estate binge is still hurting us and will continue to do so for a long while yet – astonishing facts: almost half of second homes are not worth what their owners paid for them; and about a fifth of all mortgages are under water; this alone will freeze spending for years to come, and drag home prices down even more
- Corporations show absolutely no sign of constructive expansion – by which I mean they are still pumping up profits by squeezing existing workers rather than hiring more; this perpetuates the doldrums and dampens future demand
- Worse, big businesses are pouring money into labor saving capital machinery in order to avoid hiring new workers; why? the marginal cost of workers is very high even in a low wage period because of health care costs – and yet health care reform remains controversial
- Our banks are still unstable and propped up by taxpayer guarantees – they are only slowly boosting credit availability, especially at the small business end, and are hopelessly behind in working out their own real estate blunders; our banks are just poorly run
- There are a variety of international risks that could harm US ability to boost GDP via exports, even with a decline in the dollar – ironically this overseas risk is boosting demand for US debt just as we are trying to reduce its supply; we should be taking full advantage of low rates to borrow longer and more
- US military spending is untenable and will need to be cut – since we have constructed a large part of our economy around aggressive militarism this will hurt employment
Of all these things I think the one that stands out is the political gridlock that bedevils us. Never, since I arrived here in the the late 1970′s, have I seen America so lacking in energy, new ideas, or positive attitude. The entire place has fallen into a grim self-inflicted funk. Three decades of unbalanced growth, during which a very few prospered and the rest clung on for dear life by piling up debt, has produced a sullen and deeply distrusting divided electorate. Our leadership is, flatly, a joke. We are riven through with bureaucracy in both the public and private sectors. Our politics is insanely extreme and distorted by the anger vented by voters. We are actively reducing our middle class by attacking its economic underpinnings and undermining its sense of safety by openly discussing getting rid of our safety net programs. In other words we are increasing the risk of being a middle class American, without increasing the reward. So, of course, demand drops and falters. Of course people feel uncertain. Of course they have little or no tolerance for politicians who are too timid to provide strong leadership. And of course they latch onto whatever looney fool offers up what appears to be a quick fix.
We are being led into stagnation. Deliberately and assuredly. Why, I have no idea. The country deserves so much better.
Then again does it?
It elected these fools.
As a coda to the above:
I wish I could detect some hope for better policy coming from our electoral process. But I cannot. Last night’s kick off for the Republicans produced nothing of note other than the observation that they all remain committed to the same set of ideas that produced this malaise. Indeed they all appear more likely to double down on those ideas and thus to make matters much, much, worse. Not one of them had anything new, fresh, or interesting to say. They are all market magic people. None spoke about the economy in any way that justifies optimism. Eventually one of these clowns will be the Republican candidate – assuming no one else enters the fray – and thus will have the opportunity to attack Obama for his limp, lame, and altogether timid approach to solving our woes. That confrontation is shaping up to be a demonstration of weakness. It looks as if it will be a debate between business school and law school bureaucrats – people who excelled in class, but who freeze when faced with the need for dramatic action. You cannot use business or law school ideas to run an economy. You cannot simply fire people to improve earnings. Being a CEO is easy. Running the economy is not. People tend to get a little peeved when they are unemployed – University of Chicago nutty ideas notwithstanding. As a CEO you don’t care about that. As President you do. Or at least you ought to. This election will expose America’s intellectual decline and its monocultural focus. We have no plan “B”. I fear a clash of dueling Power Point presentations and calls for more consultative studies. We don’t need better management, we need leadership. We need new ideas.
A titanic struggle this will not be.
Oh. And by the way: if you want a giggle, read Larry Summer’s article in the FT earlier this week. He seems to be advocating further stimulus. He’s the dolt who advised Obama to go with half measure back in 2009. Why, in view of his policy advisory failure, do we keep recycling this ego crazed person? Is there no one else?