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Post by unlawflcombatnt on Aug 11, 2006 15:56:31 GMT -6
Retail Sales Decline: Harbinger of Recession? The total nominal increase in July 2006 Retail Sales of $368.405 billion was 3.9% from July 2005's $354.414 billion. However, adjusting for inflation using the Bureau of Labor Statistics Consumer Price Index increase of 4.3%, this reduces the "real" Retail Sales change to -0.4%. However, the figures are even worse if gasoline station sales are subtracted. Subtracting July 2006's $43.918 billion in gasoline sales from the total nominal Retail Sales gives $327 billion. Subtracting July 2005's gasoline station sales from the total nominal Retail Sales (from July 2005) gives $319.53 billion. The difference between the July 2006's retail sales (ex. gasoline station) and July 2005's retail sales is only 2.3% in nominal (non-inflation-adjusted) dollars. Adjusting for inflation using the CPI increase of 4.3% puts the total at a -2.0%. In other words, excluding gasoline station sales, inflation-adjusted Retail Sales declined 2.0% from July of 2005. This can be seen from the Retail Sales chart below copied from the U.S. Bureau of Economic Analysis report on Retail Sales General Merchandise Sales, which make up the biggest component of Retail Sales, showed a nominal increase in dollar sales of 4.3%. (underlined in blue on the chart above.) Again, this is exactly the same as the increase in the Consumer Price Index of 4.3%. Thus, the real change in General Merchandise Sales since July of 2005 is 0.0%. In other words, there has been NO growth in General Merchandise Sales since July of 2005. The declining inflation-adjusted Retail Sales numbers are an ominous sign for the economy. They're even more concerning when gasoline station sales figures are not included, which leaves the remaining total for Retail Sales at 2% less than the previous July. Even with increased borrowing, consumers spending is declining. Since consumer spending is 70% of GDP growth, it makes further GDP growth difficult, if not impossible. With consumer borrowing ability expected to fall even further, consumer spending will likely decline further as well. Real wages have continued their steady decline since December 2002. Median real family income has declined every year since 1999. With decreasing consumer spending and decreasing consumer demand, labor demand can be expected to decline even further. The declining labor demand will result in further declines in both wages and employment, reducing consumer spending power even further. Several noteworthy economists are suggesting a recession is on the way. Paul Krugman has discussed this in his most recent article titled Intimations of Recession. Economist Nouriel Roubini, former member of Clinton's Council of Economic Advisors, has put the likelihood of Recession at 70% by the end of 2006. Another article from the Daily Reckoning has also laid out a strong case for an impending recession. All of these sources have provided a considerable amount of evidence to support their predictions. It appears that our "faith-based" economy is running out of steam. It can no longer be kept afloat by the hot air from the Housing Bubble and the alternate reality creation of the NeoCon-Artist spin machine.
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Post by unlawflcombatnt on Aug 14, 2006 20:01:00 GMT -6
One of the recession indicators cited by both economist Nouriel Roubini and the Daily Reckoning was a decline in consumer purchase of durable goods. According to the U.S. Bureau of Economic Analysis, the annualized rate of consumer purchase of Durable Goods declined $1.4 billion in the second quarter, or about 0.5%. Below is a copy of a page from the BEA with the recent changes underlined in re. This can also be found on Table 8 from the latest BEA report. This decline is one of the indicators cited by both economist Nouriel Roubini and at the Daily Reckoning site.
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Post by unlawflcombatnt on Aug 16, 2006 14:16:28 GMT -6
Several economists have noted that a decline in consumer Durable Goods purchases is one of the strongest indicators of an upcoming recession. Substantial evidence exists that this true. From the charts at the Federal Reserve sites, this seems to be validated. There was a marked decline in Durable Goods production during the recession of 2001, which had resolved by late 2002. This decline was much greater than that of non-durable goods production, which flattened over the same time period. This can be seen from the modified graph below taken from the Federal Reserve site.The above graph shows Durable Goods production. However, this tends to parallel Durable Goods purchases by consumers. As noted in the previous post, Durable Goods purchases by consumers have declined -$1.4 billion in the 2nd quarter, or -0.5%. Today's Industrial Production report from the Federal Reserve showed a decline in Consumer Goods production in July of -0.3% over June. Since July, Consumer Goods production has increased only 1.7%. This can be seen from the modified chart from the Federal Reserve below. It's also worth noting from the above graph that year 2002 is the baseline for the index numbers. Thus, an increase in the index to 107.1 implies that American consumer goods production has increased a total of only 7.1% since mid 2002. Which means over 4 years, consumer production has increased only 7.1%, or about 1.8%/year. If history holds true, a sustained decline in Durable Orders purchases by consumers will precede a recession. Since they are declining at present, a recession looks very likely.
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Post by unlawflcombatnt on Aug 26, 2006 15:55:02 GMT -6
It was pointed out to me at another site that it is not a completely accurate comparison to adjust for the total Consumer Price Index for all goods, and then subtract gasoline station sales from the total without adjusting for the price increases caused from gas price hikes. So I will correct that comparison here. The total inflation-adjusted decline, when subtracting gasoline prices, is less than what I stated. Some part of the fuel price increase shows up in other areas, however, such as airplane fuel, factor fuel, and heating oil. However, these are probably less important than auto fuel costs. The core CPI might be useful here. Since the core excludes both fuel costs AND food costs, the CPI adjusted for fuel only would be somewhere in between the core CPI of 2.6 and the overall CPI of 4.3. It so happens that gasoline station sales and food sales contribute almost identical amounts to retail sales. So a fuel-price excluding CPI would be midway between the 2 CPIs, or around 3.45%. So the inflation-adjusted change in retail sales (ex. fuel costs), would be about -1.0%.
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Post by unlawflcombatnt on Sept 12, 2006 11:57:41 GMT -6
Gary Shilling is another economist who predicts a recession. His most recent warning came in June of 2006. His "Insight" commentary is well worth reading. In it he describes the reasons for his prediction, as well as an overview of the economy. One item of particular interest is his statement that the money supply has increased at a 7.9% annual rate since January 2001. Below is copy of Shilling's June, July, and August "Insight" economic summaries. "AUGUST 2006
“What's Left?”: For 25 years, Americans' spending binge has been fueled by a declining saving rate and increasing borrowing rates. Earlier, they justified and collateralized these actions with soaring stock portfolios and, when stocks faltered, by leaping house prices.
But house prices are beginning to crumble and no other sources such as inheritance or pension fund withdrawals are likely to fill the gap between robust consumer spending and weak economic growth. Consumer retrenchment and the saving spree we've been expecting may finally be about to commence. And the effects on consumer behavior, especially on borrowing and discretionary spending, will be broad and deep.
“After The Fed Eases...”: Encouraged by Fed pronouncements, equity bulls hope for a pause in Fed tightening and a soft landing. But with only one clear-cut exception in the mid-1990s, central bank ease since the mid-1950s means the economy is in a recession, or will be within a few months.
Fed ease and the related recession are very beneficial to Treasury bonds in the majority of historical instances. But stocks, already under fire from high interest rates, suffer more as the salutary effects of Fed ease and declining interest rates are overwhelmed by recession-driven profits declines.
JULY 2006 “...And Taketh Away”: Central banks hyped the money supply early in the decade in reaction to stock meltdowns, 9/11 and deflation fears. But that money largely spurred asset speculation, not economic growth.
Now they worry about asset inflation spreading to goods and services price hikes. So they're all constricting credit in lock-step fashion. In dollar terms, combined 9 central bank money supplies grew at a 7.9% annual rate from January 2001 through April 2006. Reducing that to 5%, in line with economic targets, would slash the combined money supply by 13%, the equivalent of a 10.9% cut in total GDP.
“Something Big”: Many speculative markets such as commodities and emerging market equities saw substantial declines recently. We see that as not just a mid-course correction in continuing rallies but the beginning of big declines that anticipate global economic weakness. Weakening U.S. house prices will probably sink consumer spending and the American and world economies before long.
Our rough count of the increased value in the last five years of stocks in major countries, emerging market debt and equities, commodities, merger premiums, real estate and derivatives totals $20 trillion, or 153% of U.S. GDP. The demise of speculation could wipe out a big fraction, especially due to deteriorating investment quality and the high correlations among speculative markets in recent years.
JUNE 2006
“Semi-Annual U.S. Economic Outlook: The Finale”: The 17-quarter-long economic expansion is aging. And it's vulnerable, driven primarily by consumers' willingness to use their house appreciation to finance spending in the face of weak income gains. The housing bubble, however, appears to be bursting. Aided and abetted by Fed tightening and high energy costs, a resulting recession starting later this year looks likely. Stock markets here and abroad as well as commodity prices may already be anticipating a U.S. downturn, which will spread globally. Given the intense speculation in many areas in recent years, declines may be substantial.
“Argentina—No Muerto”: Argentina, with its largely Southern European population, has suffered from political and economic mismanagement for almost a century. The Perons' income redistribution schemes discouraged investment and paved the way for hyperinflation, which was curbed in the 1990s by freeing markets and linking the peso to the dollar. But then currency collapses in Asia in the late 1990s and finally Brazilian devaluation forced Argentina to float the peso and it dropped by two-thirds. And like many other Latin American countries today, she is emphasizing government intervention over free markets. The often-contradictory measures to spur economic growth through exports and contain inflation are not promising for a country that has a potentially great future...."Once again, Shilling's summaries can be found at "Insight". His entire site can be found at: www.agaryshilling.com/
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Post by unlawflcombatnt on Sept 13, 2006 19:29:19 GMT -6
A recent survey of 959 corporate chief financial officers showed 1/3 are predicting a recession within a year. Sentiment among CFOs is the lowest its been in 5 years. Worse still, the CFOs surveyed predicted only a 0.8% increase in hiring, less than the assumed 1.1% 12 month growth of the U.S. population and labor force size. Once again, labor demand is expected to be less than labor supply growth, putting still further downward pressure on wages. Below is are excerpts from the article from Yahoo News: CFOs"Sentiment among corporate chief financial officers about the US economy has slumped to a five-year low, with one-third predicting a recession within a year, a survey showed.
The survey by Duke University for CFO Magazine said many corporate finance chiefs, worried about weak consumer spending along with rising labor and fuel costs, are planning cuts in capital spending and hiring, which could deepen the downward spiral.
The report comes from a survey of 959 chief financial officers (CFOs), including 571 from the US, 208 from Asia and 180 from Europe....
But the executives are most worried about weak consumer demand, rising labor costs and high fuel costs, and will trim capital spending and hiring if these trends continue.
"CFOs are feeling so negatively about the US economy that one-third predict we will be in recession within one year," said John Graham, a finance professor at Duke's Fuqua School of Business and director of the survey.
"Pessimism is also growing about the CFOs' own firms, though less so than about the overall economy. This growing pessimism does not bode well for the economy. In fact, our analysis shows that CFO business optimism has a predictive correlation of about 70 percent with future capital spending, earnings and employment."
For the first time in the survey's history of 42 quarters, weak consumer demand was the top worry facing companies....
Hiring among US firms is expected to rise by 0.8 percent over the next 12 months, down from expected growth of 1.3 percent last quarter. Outsourced employment meanwhile is expected to increase about 4.3 percent....
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Post by ken on Sept 22, 2006 12:41:04 GMT -6
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