Advance Retail Sales
Today, the Commerce Department released Advance Retail Sales Data for August.
- Advance estimates of U.S. retail and food services sales for August 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $683.3 billion, an increase of 0.3 percent from the previous month, and 9.1 percent above August 2021.
- Total sales for the June 2022 through August 2022 period were up 9.3 percent from the same period a year ago. The June 2022 to July 2022 percent change was revised from virtually unchanged to down 0.4 percent.
- Retail trade sales were up 0.2 percent from July 2022, and up 8.9 percent above last year.
- Gasoline stations were up 29.3 percent from August 2021, while nonstore retailers were up 11.2 percent from last year.
Much Weaker Than It Appears
The key phrase above is “adjusted for seasonal variation and holiday and trading-day differences, but not for price changes.”
The reported numbers appear to be strong. My chart factors in CPI inflation.
On an inflation-adjusted basis, retail sales peaked in March of 2021 and fell steadily to December of 2021.
Recession Analysis
The numbers from March to December 2021 are very recession looking in isolation. But housing was humming nicely.
GDP was negative in the first and second quarters of 2022, but GDP real final sales (not the same as retail sales) were positive in the second quarter.
On the retail front, consumers picked up the pace between January and April of 2022. Real retail sales rose from 226,467 million to 233,739 million. That’s a 3.2 percent inflation-adjusted rise in retail sales and not at all consistent with a recession, even a weak one.
Starting in May, both retail sales and housing slumped. This is why I pegged recession with a start date of May (in advance), expecting continued weak retail sales coupled with abysmal housing.
The revisions to July and weak August numbers remain consistent with a weak recession that started in May.
What About Jobs?
- The Covid-recession was very short, two months, not even a full quarter of declining growth. The pandemic was also accompanied by the greatest job losses in history.
- I expect the opposite of the Covid-recession: A long period of weak growth accompanied by relatively strong unemployment numbers.
Countless times over the last six months I heard jobs are are too strong for there to be a recession.
Such talk is nonsense.
We may easily see three or four quarters of negative GDP with relatively strong jobs because we never fully filled the losses from the pandemic.
Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession
Lost in the debate over whether recession has started, is the observation that it doesn’t matter much either way.
For discussion, please see Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession
Cyclical Components of GDP, the Most Important Chart in Macro
If you missed it, please note Cyclical Components of GDP, the Most Important Chart in Macro
My follow-up article was A Big Housing Bust is the Key to Understanding This Recession
Housing leads recessions and recoveries and housing rates to be weak for a long time.
Add it all up and you have the opposite of the Covid-recession, a long period of economic weakness with minimal rise in unemployment.
Increasingly Likely That Alleged Job Strength is a Mirage of Part Time Second Jobs
By the way, jobs are nowhere near as strong as they appear either. For discussion, please see Increasingly Likely That Alleged Job Strength is a Mirage of Part Time Second Jobs
It does not matter whether you label this a recession or not. Besides, the NBER might not even announce the recession until it’s over. That happened once already.
What does matter is the Fed will likely keep hiking until the economy collapses. It won’t be fun.
This post originated at MishTalk.Com
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Milton Friedman said: “Inflation is always and everywhere a monetary
phenomenon, in the sense that it cannot occur without a more rapid increase in
the quantity of money than in OUTPUT.” The surge in the money stock, yet another monetary policy blunder, was unparalleled.
2004-12-27 $1467.7
2008-10-27 $1514.2
Dec. 2004’s money #s
weren’t exceeded for 4 years. That is the most contractive money policy since
the Great Depression. But that’s not what drove the economy. Required reserves drove the economy. As soon as Bernanke was appointed
to the Chairman of the Federal Reserve, he immediately initiated, his first “contractionary”
money policy for 29 contiguous months (coinciding both with the end of the
housing bubble, and the peak in the Case-Shiller’s National Housing Index in the
2nd qtr. of 2006 @ 189.93), or at first, sufficient to wring inflation out of
the economy, but persisting until the economy plunged into an economic wide depression).
For > a 2 year period, RoC’s
in M*Vt, proxy for inflation (for speculative assets), were NEGATIVE (less than
zero!).*
To begin with, the
monetary base [sic] has never been a “base” (money multiplier), for the
expansion of new money and credit. Flawed as the AMBLR figure is (Adjusted
Member Bank Legal Reserves), it was superior to the Domestic Adjusted Monetary
Base (DAMB) figure, which is generally cited.
The DAMB figure
included AMBLR (interbank demand deposits held at one of the 12 District
Reserve banks, owned by the member banks, as well as “applied” vault cash,
traditionally ->”prudential” or a part of a bank’s liquidity reserve
balances before 1959), plus the volume of currency held by the private-sector’s
non-bank public (Nobel Laureate Dr. Milton Friedman’s misnomer: “high powered
money”).
Any expansion or
contraction of DAMB is neither proof that the Market Group’s “trading desk”
intends to follow an expansive, nor a contractive monetary policy (adding or
draining interbank demand deposits, IBDDs). Furthermore, any expansion of the
non-bank public’s holdings of currency, the “cash-drain” factor, merely changes
the composition (but not the total volume) of the money stock. There is a shift
out of demand deposits, NOW or ATS accounts, into currency. But this shifting
does reduce member bank reserves by an equal, or approximately equal, amount.
An expansion of
the public’s holdings of currency will cause a multiple contraction of bank
credit and “total checkable deposits” (relative to the increase in currency
outflows from the banks) ceteris paribus. To avoid such a contraction the desk
typically offsets currency withdrawals with open market operations of the
buying type (e.g., purchases of government securities for the portfolios of the
Reserve Banks, an increase in the Central Bank’s System Open Market Account,
SOMA). The reverse is true if there is a return flow of currency to the banks.
Since the trend of the non-bank public’s holdings of currency is up (ever since
1930), return flows are purely seasonal & cannot therefore provide a
permanent basis for bank credit and money expansion.
FOMC policy has
now been capriciously undermined by turning excess reserves into bank earning
assets. Interbank demand deposits, IBDDs, were non-earning assets prior to
October 2008. So, the FED has emasculated its “open market power”,
the power to create new money and credit. I.e., remunerating IBDDs emasculated
the money multiplier (more accurately defined as commercial bank credit divided
by legal reserves).
link: Bank
Reserves and Loans: The Fed Is Pushing On A String” – Charles Hugh Smith
payment of interest on interbank demand deposits (at a level higher than the
general level of short-term interest rates – which was illegal per the FRSSA of
2006).
Thornton, Vice President and Economic Adviser: Research Division, Federal
Reserve Bank of St. Louis, Working Paper Series
from that money held as savings. Dr. Dan Thornton is correct. “Money Supply
and Inflation: Where’s the Proof?” WSJ July 21, 2022
GFC:
Oct 2006, & up a huge 6.3% from Nov 2006.