Core Retail Sales
Core retail sales are retail sales excluding autos, auto parts, and gasoline.
I calculate 17.9% not 20% as shown in the above chart. But this is nitpicking.
I loved the idea in the lead chart, pulled off Twitter, and that is why I did this post.
Core Retail Sales Components
Core retail sales include dining out (something impossible to do online), as well as grocery shopping (not realistically possible to do completely online especially meat, other fresh foods, and frozen foods).
Core Retail Sales Minus Food Categories vs Nonstore Retail
Nonstore Retail Percentage of Core Sales Excluding Food
Trend Won’t Stop Here
This trend will not stop here.
Auto sales will eventually be mostly online. Dealers will become service centers.
Gasoline will give way to electric.
Uber, Lyft, and rent-on-demand will eventually replace car ownership.
The entire notion of “core” retail sales will itself change as delivery mechanisms and ownership preferences change.
This will not happen overnight. But the trends are clear on multiple fronts.
For now, expect more store retail store closings and bankruptcies.
Enormously Deflationary
The picture I present is enormously deflationary.
Technology is inherently deflationary by any realistic definition.
Fighting this, as central bankers do, is extremely counterproductive.
BIS Deflation Study
The BIS did a historical study and found routine deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.
It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Nothing But Bubbles
Central bankers are hell bent on producing inflation but the result is nothing but bubbles.
Guess what?
Bubbles pop.
Tough Chore
Producing inflation (as measured by central banks) is a tough chore. Negative interest rates don’t help.
If producing inflation was easy, Japan would have succeeded long ago.
For discussion of the negative interest rate debacle, please see ECB’s Counterproductive QE: Whatever It Takes Morphs Into “As Long As It Takes”
Of course, there is plenty of inflation. Central banks don’t see it because they ignore stock market bubbles and housing prices. They also understate medical costs.
Deflation on Deck
As stated above, bubbles pop. When they do, credit deflation ensues.
Add to that mix, student debt, attitudes on marriage and home ownership, and deflationary demographics.
Mike “Mish” Shedlock
“The BIS did a historical study and found routine deflation was not any problem at all.”
1929-33 was not routine deflation.
Deflating interest rates have lead to a credit bubble. Central Banks have even gone negative interest in an attempt to keep the bubble from bursting. Burst bubbles re anything but routine deflation.
Make that 6 graphs.
Mall REIT vs all REITs:
The new mall is Amazon Marketplace. In 20 years their warehouses will probably look like malls when the next new thing comes along, or municipalities tax warehouses to death.
In the meantime, Apple retail is still booming, much to the detriment of the experience. Apple isn’t opening new stores, just doubling down on existing ones and devoting more space to selling product instead of supporting it. The last two times I was in an Apple store they were jammed full of people (as was the mall -Park Meadows in Denver), and just getting the attention of a salesperson was a 10 minute ordeal. Then came the wait in the kids’ play area (don’t think it was designed to be that, but there was a mob of kids playing with the furniture) and finally getting done what I came in for. Oddly enough I had scheduled an appointment. Sure, just an anecdote but just about every weekend I’ve been in an Apple store is pretty much the same experience either a lot of people are having problems with their iPhones or a lot of people are shopping retail.
People, women in particular, still LOVE outdoor shopping ! Here, in our belgian towns and cities, boutiques are increasingly going bankrupt or simply disappearing, not for lack of customers but rather because of the unsustainable, crazily high rents that have to paid as a consequence of the cheap debt inflated property market…..
Amazon is successful because it is financing its operations to provide shipping below market rates. Same as China inc. That will end soon. Watch interest rates; they are the sworn enemy of the GDP (Global Debt Ponzi).
How is it counted, if you shop groceries online, but then pick them up at the physical store? And what if they are delivered?
The experts in inflation are Zimbabwe, Venezuela and Weimar Germany.
The problem is generating ACCEPTABLE levels of inflation.
Gen Z is going back to the malls. There is not enough volume to support the current capacity but they will survive.
Are you suggesting that we don’t need a starbucks on every corner?!?!?!?! /sarc
I hate malls, but this is no cause for rejoicing.
The store (of some kind) will live forever, though perhaps with orders of magnitude less sq feet.
Why would improved efficiency in retail not be a cause for rejoicing? If only Amazon et al, were not barred from doing the same to the auto dealer, drug, medical services, housing and other rackets, we could rejoice even more.
I’m guessing that malls will indeed survive, undoubtedly smaller and in a different form. However its obvious that restaurants, grocery stores, coffee shops etc aren’t going anywhere so malls are going to keep many of their core businesses.
One trend in the US I’m curious about is where online retailers are snapping up floor space in malls to use as local distribution centres. Does anyone know if these warehouse spaces come with shop fronts where people collect their purchases?
In some ways it feels like we’re going back to the late 19th and early 20th century when we know that a lot of people did catalogue shopping.
Ive talked about this before … the online retail sales requires delivery, and I have a friend that was an Uber/Lyfter for a year and does “Doordash”-style delivery now. Everyone does realize that these businesses currently expect the car owner/UPS/FEDEX — like my friend — to do all car repair, maintenance, gas, loan payments, deposit on buying another car every 2-4 years (he was doing 40k miles a year!) based on a starvation wage. You are doing delivery cause youre desperate, and have no money to save for the next car purchase. These businesses dont want to have those vehicle expenses! Theres only so many sub-$20ks with working cars to press into service. Oh, thats ok, we’ll use drones and company trucks instead … you have a weight issue and trucks are expensive too (electric trucks with batteries are gonna be real heavy). Today you get an MBA taking courses on how to push your expenses onto the ever-increasing poor. This will work .. for awhile …
You are 100% right on maintenance and repair costs being unaccounted for.
But local municipalities have exploited shop keepers via property taxes for decades, and the bureaucrats never lost a wink of sleep over it.
Retail stores can’t support onerous property taxes plus social justice warrior wages (sorry baristas, you aren’t worth $15 an hour under any circumstances).
Lots of people now write $0 on their restaurant tip line, and then tip the waitress in cash. The person doing the work gets the money, instead of the municipal overhead taking it.
As a former server, the law is that a server gets taxed on 8% of gross sales. It matter not whether one tips cash or credit. You can tip $1M or $0 and your server is going to pay tax only on 8% of your total check.
Where is that true? Servers around here do not report cash tips as income. Unless they want to (guess).
You make a good point. The online, instant gratification/labor-exploitation model has its limits, and we have yet to see the full backlash…a backlash which is most definitely coming.
Pushback is here, not coming.
I mentioned many diners write $0 tip on the check, and then tip the waitress in cash. That is the most obvious thing, but hardly the only way consumers have found to direct more money to the people doing the work.
Bars in the city near me constantly report glasses and plates being broken, and liquor disappearing. I am sure all of the above does happen. But they over report it, deduct it from their revenue, and stiff the tax man as much as they can get away with. They have to in order to make ends meet. What are the corrupt city inspectors going to say? City corruption is good, but bar corruption is not?
Bar regulars will testify to help the wait staff and the bar owner, and the city employee can go pound sand. They will retire and stop the pretense of “working” soon enough either way.
I am sure the average waitress at the average diner works harder and does more in the first hour of her shift, than the average city employee does in a month. That is not exaggeration to make a point, its the way it is and municipal employees should be embarrassed.
The local school teachers are complaining because they have to spend the whole day with spawns of wokesters, and not kill the little imps, and then they have to buy school supplies out of their own paychecks because “there is no budget for that”. Its a school… no budget for school supplies.
Meanwhile the superintendent, who really only works 4-5 weeks per year and coasts the rest of the time, just refurbished his office for the third time in four years — they had the budget for that. He also has two assistant superintendents to assist him in barely doing a C- job. Three administrators, three paychecks, three benefits packages, three office refurbishments — and together they barely do the work of one full time job.
Local stores (and local taxpayers in general) cannot continue to float the lazy municipal worker unions.
So I expect a lot more screaming, yelling and temper tantrums for the next business cycle or two — as municipality after state after municipality are forced to restructure against their will.
While we wait, consumers will continue to move away from the worst states.
“I am sure the average waitress at the average diner works harder and does more in the first hour of her shift, than the average city employee does in a month. ”
And the average Wall Streeter, “Home Owner”, “Investor”, politician, lobbyist, peddler of mandated Insurance and ambulance chaser do in several lifetimes. At least if you factor out the purely pointless makework performed, to help keep up pretenses that Fed money printing and arbitrary “laws” and “regulations” are in any, at all, way, shape or form even remotely useful activities.
Oh here we go with the deflation nonsense again.
Meanwhile, Target, Walmart and Costco are absolutely having a field day. Sales are way up. Walmart’s e-commerce efforts are growing faster than Amazon’s did. The fact that there is already a Walmart in every small town USA means Walmart has a HUGE (copyright Donald Trump) advantage. Target is smaller, but they are having success in home goods. Costco has a limited inventory but doing well in their chosen products.
The stores that bleed profits to pay dip sh!t shopping mall rents… they are in big trouble.
Its a real estate story, not a retail story. Mish is focused on the wrong symptoms again.
I think it’s a combination of both retail and real estate, but also a story about predatory capitalism in general. The online, predatory -gig economy model is not sustainable in many of its current forms. Uber and Lyft are prime examples. WeWork is an accident waiting to happen.
I can appreciate the destruction in the retail sector, but even this will eventually reach a limit as labor demands its pound of flesh from this predatory economy.
No way you are going to get everyone to rent a car in our lifetimes, especially in states like Texas. You’d have a better chance of forcibly removing their guns, as in not much of a chance at all.
I can appreciate Mish’s point on retail, but I disagree with the solutions. I don’t by the libertarian argument that unions are the problem. Yes, some of them are bad, and yes there are reasons to be wary of conflicts of interest. That being said, I think this is a story of of a generational shift in the making, as a rigged economy becomes exposed for what it is. You can’t blame labor for wanting/demanding a living wage. Anyone who thinks unions and labor are the root cause of the problem should buy their own farm and try to live off the grid, be self-sustaining. (good luck with that).
The last several decades have seen a continual shift of wealth distributed upward towards rentiers and crony capitalists. These things don’t go on forever without some serious backlash/consequences.
I said municipal unions are the root cause, not unions in general.
I think municipal unions are doing to big cities what the UAW did to the auto industry. Of course, the UAW had plenty of help from management in destroying GM, and municipal unions are being aided by politicians.
But it doesn’t matter that the UAW has a contract promising themselves unlimited pay, unlimited benefits, short hours and generous retirement. They only got that IF they made good cars, and they stopped making good cars.
I don’t care what empty promises the politicians did or didn’t make to municipal unions. It was all predicated on the bureaucrats providing good, efficient service. Government workers are the laziest and most corrupt people I know. I don’t care if they think they are entitled to retire after 20 years of doing nothing — that is crap.
And I know that mom and pop store owners are struggling to pay rents (including property taxes), plus social justice warrior wages (which is politics, not labor), plus bribes and regulatory costs. Bribing government inspectors is so common place in big cities now that no one bats an eye.
Municipal unions are corrupt and unsustainable.
Lyft and Uber probably are not sustainable business models in the long run, but they were born of an effort to side step the taxi and limousine regulatory racket. Bureaucrats collecting fees, taxi owners collecting royalties, bureaucrats collecting kickbacks — drivers barely getting by. Lyft and Uber will are dependent on taxi commissions for their survival
There are huge differences between unions in the private sector and unions in the public sector. In the private sector you can a business negotiating against labor. If the company agrees to too much, they end up bankrupt, and it is also true that if labor demands too much, they kill the company, and in the process kill themselves. But, with a wise union, they can demand better for the employees, but not more than what the company can pay, and the two can work together to make both better off.
By contrast, in the public sector, there is a one-sided negotiation One public sector negotiates with another to reach a contract that will benefit only them, at the expense of taxpayer, and public unions build a powerful lobbying arm to secure the support of politicians, assuring that the taxpayers have no say in the matter. Since government has the power to initiate confiscatory tax policies, it is hard for them to go bankrupt, because they can just raise taxes until they confiscate all property, as we are seeing in Illinois. That, sadly, is the inevitable end everywhere that allows public unions because there can never be balanced negotiations, and taxpayers will always lose.
“Gasoline will give way to electric.”
Not unless government actions force it.
Yup. Electric car technology has been available for decades. It just doesn’t make economic sense except in a confined area, like a golf course or a retirement community where they already exist.
Electric car technology has also improved during that time and is still improving.
As has, to an even greater degree, petrocar technology.
For a while, about a decade to 5 years ago, Battery electric vehicle tech did improve much faster than mature technologies like ICEs.
But the specific mechanism by which that happened is important: It simply took 30 years worth of battery improvements from portable consumer electronics, and applied that to vehicle propulsion over a period of a few years.
Now this seeming windfall is over. And battery tech for vehicles is back to growing in lockstep with battery tech for electronics in general. Meaning, improving at the pace of a mature technology. Like ICE tech.
Still a solution in search of a problem indeed.
But so many Trump supporters keep saying the economy is great! Thanks Trump! [lol]
Trump is no more in control of the economy than any other president. So thank Obama and Bush as well and then Clinton before them.
Decade (a record)of no growth,completely dead in the water economy will do that.Goes to show that printing hundreds of trillions out of thin air to buy (prop up)everything and pretending everything is “booming” or in “recovery” ain’t getting it done,sadly pretending won’t pay the bills,and it is my belief the federal govt will not survive the year without 1…..default and 2…collapse of the currency.Simply printing money to pay bills doesn’t work…..at least not for long!