Chart of the Day Year - 11.14.2008
| Fri Nov. 14, 2008 9:16 AM PST
CHART OF THE DAY YEAR....Consumer spending has fallen off a cliff:
Dragged down by plummeting automobile sales, retail sales fell by a record amount in October, the Commerce Department reported on Friday.
....Sales of cars and auto parts plunged 23.4 percent from last year, the Commerce Department said....Sales of furniture and home-furnishings fell by 13.5 percent compared with 2007, the latest report said, and Americans also spent less money at retailers who sell home electronics, appliances and sporting goods, books and clothes.
The chart below, from Calculated Risk, shows the numbers adjusted for inflation (in blue). Those are the ones that count. Just as it's ridiculous to say that "spending at gasoline stations dropped sharply," as if that's meaningful (people didn't buy less gasoline, after all, they merely benefited from lower prices), it's also ridiculous to claim that overall retail sales were down 4.1% from last year when they were really down nearly 9%. Like it or not, that's a much better indication of how much actual stuff people were buying. (Or not buying, in this case.)
Anyway, Paul Krugman's $600 billion stimulus is looking better all the time. I'm still unsure what to think about an auto industry bailout (though leaning against), but the argument against a broad fiscal stimulus is pretty much nonexistent now. Congress needs to get moving.
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Comments
I think GM is dead, largely from self-inflicted wounds.
But remember, we are told we the bailout is because these companies were too big to fail.
So "my" auto-bailout: Break GM up. Then offer the pieces loans. Offer similar cheap money deals to possible and future competitors like Tesla, Aptera, Terrafugia. Encourage lots of horizontal competition. Make it possible for smaller companies to grow.
Once upon a time, politicians and economists thought competition was good.
I'm really torn about this auto bailout idea, I've got a lot sympathy for the notion that we shouldlet go down.
But whenever I think "let 'em fail", I think of Lehman. When they let Lehman die, which seemed to me a good idea at the time, the shit really hit the fan.
Does anyone really want to conduct another free-market experiment in industrial failure right now? Just when we're on the edge of a depression?
I'm one of those people who worries about the Democrats keeping power in 2010 and 2012, even if I'm more confident of it than others. If there's one way to ensure that people come way with the impression that Obama and the Democrats are doing something, it's to pass a massive stimulus package that looks like it will help with employment. I'm not really sure how it could be fast-tracked so that the steamrollers could fire up right away, as some in the media like to say, but if they could figure out a way to get this moving quickly, so much the better.
Submitted by stefan (not verified) on Fri Nov. 14, 2008 9:30 AM PST.
I sort of doubt that CR is using the right CPI components to deflate retail sales here. The CPI has lots of non-retail sale components like health care and housing costs (which do include utility costs which have been falling) -- one ought to do this graph correctly deflated. BTW, 90% of the fall Sep. to Oct. in nominal terms is auto sales and gasoline.
It would be nice to see correctly deflated food sales --- that is pretty much where the real signal is. If people cut down on food we're in trouble. Correcting for the food away from home and food at home is hard though...
"But does inflation really exist at this point?"
The questioner apparently does not buy groceries or pay utility bills.
Regarding the automakers: Chapter 11 is the way to go, but will be resisted because massive job losses will result. One advantage of a bailout would be to impose conditions -- such as ending production of gas guzzlers and cutting off money to lobbyists -- that a judge probably wouldn't impose.
Wondering if my grandkids are going to ask me the same kinds of questions I asked my father.
"Why does the government subsidize milk?"
"Because when I was a kid [c.1930] the milk farmers were failing." (Followed by a long riff about ketchup soup and shoveling dirt for the WPA.)
Here's to hoping my grandkids aren't subsidizing something called "GM" 50 years from now.
Walker is right, only it's not just smaller stores that need holiday shopping to make it. Linens & Things is already gone, and Circuit City may join them next year.
Whatever your feelings are about consumerism, consumer spending is what fuels most of the economy.
I own a retail business and I'm here to tell you that we'll be fortunate to make it through this. It's the worst I've seen in close to 30 years of business.
The well is dry. After years of stagnant income, increased cost of living, and decreased savings consumers have to nothing left.
I feel bad for businesses in trouble but if the Chamber of Commerce others would have considered the need for decent paying jobs for workers in this country we might not be in this situation. One would think it would occur to someone that the well paying jobs that we outsource have something to do with the consumer's inability to spend.
Hey, I admit to being totally innumerate, but isn't the expectation of yearly growth in retail sales somewhat unrealistic in the long term? I mean, at some point a stable population should reach a stable level of consumption, am I right? Aren't people just starting to realize they've been spending too much?
charles, the essence of the modern consumer economy is to provide excuses for people to keep buying, whether those excuses are everyday low pricing or technology advancement or advertising or what have you.
anyhow, we don't have a "stable" population: the population is growing, and people pass through different stages of life with different needs (no one who doesn't have children would ever buy a high chair, for example, but if you have children, it's a must-purchase).
now, i happen to believe that access to credit is going to be more limited going forward than it has been for half a century, and this may well lead to a behavioral change in terms of consumption, but that won't be because people have suddenly, en masse, adopted a buddhist simplicity.
What about buying Amerian made products? Why is that never brought up? I've visited several websites and did a speech about this in a college course, and there are plenty of products made in this country to be purchased. American made products employ workers who are protected and make more money. Also, the safety of the products can be better controlled and it means that far less energy is used in shipping. Why is this never mentioned?
Why isn't the tax payer vying for a piece of the tax payer funded pie? Because the tax payer has no real representation in Washington. If congress were to send this money to the tax payer/consumers you would quickly see this economy turn around. The tax/payer should be first on the list to receive tax payer funds. It is a no-brainer. (The next thing congress needs to do is obviously pass a huge education spending bill. What is going on right now in Washington makes the case of a need for better education a given.)
The problem with this world wide crisis is fixable.
This is a consumer driven recession and it's going to be the consumer that will get us out of it.
All these other economist keep saying that there needs to be a price correction/discovery and let the market take care of it. But, they are all missing the simple fact that debt will not price correct easily. In fact it is quite difficult. For example, a basket of goods bought on CREDIT for $1000 last year will not correct in price if that same basket of goods cost $500 next year. The consumer who bought that basket of goods last year is still in debt for $1000 - plus interest.
I clearly see what the problem is with all the treasuries efforts to fix this economic catastrophe.
The money from the treasury is being allocated to non-productive companies. How are these companies going to make any money in the future with the middle class being dead in the water? And, how much do you think the GDP will soon decrease if you continue to throw money at non-productivity? You can give all the money you want to the banks, car manufacturers, etc., if they don't have the costumers they are not going to be productive and therefore non-profitable. The consumer is stressed for cash and has no credit.
Look, the government returned money to the tax payer in the form of rebates earlier this year, but it was not enough. What the tax payer did with the money was either pay off debt or save the money, which is precisely what needs to be done first to save this economy. So, the tax rebate was exactly what this economy needed but is was hardly enough. So I ask you, what else can possibly be done to boost consumer spending that would be more effective than putting money directly into the tax payer hands? Nothing. The consumer needs a larger tax rebate. How about $250 Billion every quarter until the economy climbs out of this rut?
Once these billions of dollars trickles up into the economy the GDP growth will trump any hint of inflation. The deflationary spiral is going to spin out of control if the consumer is not saved.. Giving billions of dollars to these big companies in hope that it will "trickle down" to a consumer in a mountain of debt will never work. It's classic "tickle down" economics that has not worked in the past without also helping the middle class tax payer to the same degree.
Returning more money to the tax payer/consumer would have kept a majority of people from taking money out of mutual funds, 401 K, bank deposits etc. Some consumers would have paid mortgages, bought cars, paid off credit cards, etc. Many new home buyers would have even gotten into the home market. The economy is sinking into a deep hole. Either the CONSUMERS get the BAIL-OUT or none of us will ever be able to see the light of day for a very long, long time.
My hope is that the Treasury Department is already planning to save the consumer in the same way aforementioned. If it is, my only concern to you is that this economic problem would have been a lot cheaper by correctly saving the consumer first.
Think of the invisible hand of consumer sovereignty. The consumer will guide this economy out of this recession with a little capital and some tax relief.
The only way to save this economy is from the bottom up, not from the top down.
The Government has wasted our tax money for too long. It's called wasteful spending. Now the chickens have finally returned home to roost. We have been over taxed and it's time to claim our money back, or this country, along with the rest of the world, will suffer a global depression. Every developed country needs to follow America's lead in cutting taxes or they will be left behind.
Just as it's ridiculous to say that "spending at gasoline stations dropped sharply," as if that's meaningful (people didn't buy less gasoline, after all, they merely benefited from lower prices)
Actually, I think this is backwards. With the way that unemployment has been climbing, a significant number of people *are* commuting less, and making minimal shopping trips...which is playing havoc with gasoline distributors' inventory management, so they're dropping prices to move the inventory. But since the employment situation isn't stabilizing, the price of gasoline isn't getting any traction either.
This chart is so saddening to me because it is very true. My retail business [small home decor boutique and interior design firm] is down 48% from last year in overall dollars. I acclimated to it gradually and have been able to cover all my expenses and keep things going, but there is zero room for growth right now and the murky future smells like rain. Only through optimism am I keeping my joy in what I do. I felt safe up until recently, thinking that a clientele of doctors and other urban professionals was well insulated and would sustain my business. That is probably factually true, but consumer confidence is as calculable a commodity in the market as any tangible wealth, so without that, they are doing much smaller projects. The loss of market to new home owners equally works against me. I actually believe some recession is healthy in the overall cycle, but the prospect of failing at something I love doing and have a talent for is nonetheless troubling. I hope I can stay at it until we get to a better place.
