Recession Looming?

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.


unlawflcombatnt

EconomicPopulistCommentary

Economic Patriot Forum

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The economy needs balance between the "means of production" & "means of consumption."

There is a recession brewing. That should go without saying.

I've written much about this already on one thread, but here's another angle:

I believe GDP growth last quarter of 2.5%. I think 2.2% was due to the housing industry. We all know that housing is undergowing a contraction, or at least a slowdown. So assume housing drops to zero, that means our GDP, theorhetically, can drop to .3% -- very close to recession (meaning GDP flattens or actually reverses).

So with such a slight margin of .3%, it wouldn't take much else to tip the scale to the negative.

That being said, perhaps the biggest indicator of a coming recession is our inverted yield curve. Basically an inverted yield is when the return on a 10-year or more treasury rate is actually less than short-term treasury rate returns (short-term generally defined as 2 years or less).

Common investing sense dictates that the longer you loan someone your money, the more you should see a return. For example, if I give the government $1,000 for 30 years, I should get a heaftier return for that money than if I loaned the same amount for only say 2 years.

But throughout our economic history there have been instances where the opposite occurred, i.e. the inverted yield curve. And each and every time they have occurred, we've slumped into recessions (anyone remember the 2-month inverted yield just as the tech bubble burst during 2000?).

We've been in that state for the past six months. So by that dictate alone, I feel recession is upon us.

But there are many other signs, like you pointed out: Consumers are starting to tire out is one. There has been a serious flight to quality among investors, especially of dollar-backed investments among foreign investors (despite all the anti-dollar rhetoric). The TIC data for June totaled $84.7 billion in foreign purchases of U.S. securities, a huge surge that surpassed expectations.