Tuesday, July 14, 2009

Economic Data 7/14

Let’s start by diving into retail sales which were higher than expected overall on a month to month basis, up .6%. Ex-autos, however, growth was less than expected. Below is Econoday’s take on the numbers, note that they don’t even mention the 9% Year over Year decrease that represents a historic collapse of sales:
Retail sales in June came in a little stronger than expected on increases gasoline and motor vehicle sales. Otherwise, sales were soft. Overall retail sales posted a 0.6 percent gain after rebounding 0.5 percent in May. The advance in June topped the market projection for a 0.5 percent increase. Excluding motor vehicles, retail sales gained 0.3 percent, following a 0.4 percent boost in May. The consensus had expected a 0.6 percent increase. The latest increase in overall sales was led by a 5.0 percent surge in gasoline station sales. Excluding motor vehicles and gasoline, retail sales slipped 0.2 percent after easing 0.1 percent in May.

Outside of gasoline and motor vehicles, sales were mixed but mostly down. Notably, building materials & garden equipment fell 0.9 percent. Consumers are eating at home more as food services & drinking places also declined 0.9 percent. General merchandise slipped 0.4 percent. On the positive side, gains were led by electronics & appliance stores and by sporting goods, hobby, book & music stores, both gaining 0.9 percent.

Overall retail sales on a year-ago basis in June were down 9.0 percent, improving from down 9.8 percent in May. Excluding motor vehicles, the year-on-year rate slipped to down 7.9 percent from down 7.6 percent.

The June boost in retail sales shows a sluggish consumer sector once autos and gasoline are discounted. Equities should not be very excited about the numbers after going into the detail. But stocks are focusing on earnings and Goldman Sachs beat estimates sharply before open.

And over in the weekly ICSC report, same store sales were down sharply for the week, falling .9% and also falling .7% year over year. Again here’s Econoday’s spin:
Cool weather, the coolest in 12 years, pared demand for seasonal goods, driving ICSC-Goldman's same-store sales tally down 0.9 percent in the July 11 week for a 0.7 percent year-on-year decline. The report is warning that July will likely be "another tough month" for retailers. June retail sales will be posted at 8:30 ET.

Meanwhile, the Redbook was down a whopping 5.7% last week on a year over year basis and that follows a 4.2% decrease the week prior, meaning that conditions in department stores are worsening.
Redbook keeps reporting sharp declines with same-store sales at a year-on-year minus 5.7 percent in the July 11 week. Month-to-date, sales are down 1.7 percent vs. June. The report said customers are not responding to women's fashions which is bad news for department stores. For department stores, this morning's retail sales report extended a run of very deep declines. General merchandise is also on a long string of declines while clothing is flat. These are the categories tracked by Redbook and ICSC-Goldman which explains why both of these reports have, and unfortunately continue, to report significant weakness.

The Producer Price Index came in hotter for June than previous months largely on the back of higher gasoline prices. Note in the two charts that follow Econoday’s take, that the month to month chart is showing increases but when we look at the year over year chart we see a huge plunge in this index. On that YOY chart, note that the “core” has remained positive and has yet to go negative. This is statistical game playing that has gotten out of hand. Note that the overall PPI is DOWN 4.7% year over year! Not quite enough to trigger a deflationary spiral signal but very close:
Producer price inflation in June jumped sharply at the headline level due to higher energy costs. The core also was high and largely due to higher motor vehicle prices. The overall PPI spiked 1.8 percent in June, after increasing 0.2 percent in May. The boost in June was sharply above the consensus forecast for a 0.8 percent hike in the headline PPI. The latest gain was led by the energy component which jumped 6.6 percent. The food component also posted a large gain-1.1 percent. Meanwhile the core PPI rate advanced 0.5 percent, coming in much higher than 0.1 percent decline in May. The latest number was stronger than the market expectation for a 0.1 percent gain.

Boosting the core rate were a 2.0 percent jump in auto prices and a 3.4 percent surge in light truck prices.

For the overall PPI, the year-on-year rate fell to minus 4.3 percent from minus 4.7 percent in May (seasonally adjusted). The core rate year-ago pace firmed to up 3.4 percent from up 3.0 percent the prior month.

The latest PPI report was quite strong but largely due to temporary factors. Energy is now in retreat and the spike in auto and light truck prices will not continue. The June PPI is an aberration in the current inflation trend. Bond yields, however, are likely to firm. Stocks are focused on earnings with Goldman Sachs sharply beating estimates before open. Also, retail sales were a little better than expected.

If it were up to me, I’d scrap the BIS, the BLS, and all government agencies that produce statistics and I’d start over in one giant swoop! I’d develop a set of statistics that cannot be changed and tweaked over time – a “core” set of statistics if you will. NO, statistics don’t need to “change with the times,” the laws and principles of economics do not change – this time the math of debt is no different than the basic math in Roman times! We need to stop tweaking and spinning things into a positive, the only one we’re fooling is ourselves – it’s leading to economic mass psychosis!

Billy Joel – Honesty: