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It has only been two weeks since Christmas, and already we are witnessing a stunning bloodbath of store closings. Macy’s shocked the retail industry by announcing that they will be closing about 100 stores. The downward spiral of Sears hit another landmark when it was announced that another 150 Sears and Kmart stores would be shutting down. And we have just learned that The Limited is immediately closing all stores nationwide. If the U.S. economy is doing just fine, then why are we experiencing such a retail apocalypse? All over America, vast shopping malls that were once buzzing with eager consumers now resemble mausoleums. We have never seen anything quite like this in our entire history, and nobody is quite sure what is going to happen next.

Not too long ago I walked into a Macy’s, and it was eerily quiet. I stumbled around the men’s department looking for something to buy, but I was deeply disappointed in what was being offered. After some time had passed, an employee finally noticed me and came over to help, but they didn’t have anything that I was looking for.

And it is a sad thing, because over the past several years when I have gone into Macy’s looking to spend money, most of the time I have come out of there without spending a penny. Macy’s has made some very bad decisions recently, and I am hoping that they can still turn things around. But for the moment, they are closing stores and cutting jobs. The following comes from the New York Times…

…click on the above link to read the rest of the article…

This is How Consumers Turn into Debt Slaves

November 12, 2016

This is How Consumers Turn into Debt Slaves

The Fed likes the word “credit.” Sounds less onerous than “debt.”

Consumer debt rose by $19.3 billion in September to $3.71 trillion, another record in a five-year series of records, the Federal Reserve’s Board of Governors reported on Monday. Consumer debt is up 6% from a year ago, at a time when wages are barely creeping up and when consumer spending rose only 2.4% over the same period.

This follows the elegant principle of borrowing ever more to produce smaller and smaller gains in spending and economic growth. Which is a highly sustainable economic model with enormous future potential, according to the Fed.

Consumer debt – the Fed uses “consumer credit,” which is the same thing but sounds a lot less onerous – includes student loans, auto loans, and revolving credit, such as credit cards and lines of credit. But it does not include mortgages. And that borrowing binge looks like this:

us-consumer-debt-total-ex-mortgages-2016-09

Diving into the components, so to speak: outstanding balances of new and used vehicle loans and leases jumped by $22.6 billion from Q2 to $1.098 trillion, another record in an uninterrupted four-year series of records.

Auto loans have soared 38% from Q3 2012, the time when they regained the glory levels of the Greenspan bubble before the Financial Crisis:

us-consumer-debt-auto-2016-09

Auto loan balances have soared because people bought more cars. New car sales hit an all-time record last year, though they’ve started to flatten out or decline in recent months. The balances have also been rising because loan terms are getting stretched, and because the balances on individual loans have been getting bigger as cars got more expensive and loan-to-value ratios rose:

…click on the above link to read the rest of the article…

Why no economic boost from lower oil prices?

April 18, 2016

Why no economic boost from lower oil prices?

Many analysts had anticipated that a dramatic drop in oil prices such as we’ve seen since the summer of 2014 could provide a big stimulus to the economy of a net oil importer like the United States. That doesn’t seem to be what we’ve observed in the data.

There is no question that lower oil prices have been a big windfall for consumers. Americans today are spending $180 B less each year on energy goods and services than we were in July of 2014, which corresponds to about 1% of GDP. A year and a half ago, energy expenses constituted 5.4% of total consumer spending. Today that share is down to 3.7%.

Consumer purchases of energy goods and services as a percentage of total consumption spending, monthly 1959:M1 to 2016:M2. Blue horizontal line corresponds to an energy expenditure share of 6%.

But we’re not seeing much evidence that consumers are spending those gains on other goods or services. I’ve often used a summary of the historical response of overall consumption spending to energy prices that was developed by Paul Edelstein and Lutz Kilian. I re-estimated their equations using data from 1970:M7 through 2014:M7 and used the model to describe consumption spending since then. The black line in the graph below shows the actual level of real consumption spending for the period September 2013 through February of 2016, plotted as a percent of 2014:M7 values. The blue line shows the forecast of their model if we assumed no change in energy prices since then, while the green line indicates the prediction of the model conditional on the big drop in energy prices that we now know began in July of 2014.

…click on the above link to read the rest of the article…

Deep “Freight Recession” Hits Railroads, Trucking, Air Freight

January 22, 2016

Deep “Freight Recession” Hits Railroads, Trucking, Air Freight

“Consumers just don’t seem to be showing up….”

As much as we would have liked to, the Dow Transportation Average wasn’t kidding. It has plunged 27% since its high on December 5, 2014. Nearly two-thirds of that plunge came over the past two months. Transportation companies are singing the blues. Railroads, trucking, air freight….

Union Pacific, the largest US railroad, reported awful fourth-quarter earnings Thursday evening. Operating revenues plummeted 15% year over year, and net income dropped 22%.

It was broad-based: The only category where revenues rose was automotive (+1%). Otherwise, revenues fell: Chemicals (-7%), Agricultural Products (-12%), Intermodal containers (-14%), Industrial Products (-23%), and Coal (-31%). Shipment of crude plunged 42%.

So Union Pacific did what American companies do best: it laid off 3,900 people last year.

This is what CEO Lance Fritz told Reuters about the American consumer: “What’s causing us some concern is it’s hard to figure out where the consumer is at.”

Consumers were sending mixed signals. Spending is shifting from retail of goods toward services. People were buying automobiles, and auto shipments rose in the quarter. And unemployment numbers looked good, he said, but labor participation “is lackluster and consumers just don’t seem to be showing up to purchase goods and services.”

And another disappointment about consumer behavior, according to Fritz: “There was a widespread belief that consumers would turn the savings from low fuel into spending, and we haven’t seen that so much.”

Canadian Pacific, which is trying to buy US rival Norfolk Southern in a deal that is vigorously contested by other railroads, reported a 4% drop in fourth-quarter revenues and a 29% drop in net income. Among its biggest decliners: crude-oil shipments (-17%) and consumer-products shipments (-24%). It garnished the report with an announcement of up to 1,000 layoffs.

CSX, in its earnings release earlier in January, reported a revenue decline of 7% for the year.

…click on the above link to read the rest of the article…

The Velocity of the American Consumer

December 19, 2015

The Velocity of the American Consumer

I was reading something yesterday by my highly esteemed fellow writer Charles Hugh Smith that had me first puzzled and then thinking ‘I don’t think so’, in the same vein as Mark Twain’s recently over-quoted quote:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

I was thinking that was the case with Charles’ article. I was sure it just ain’t so. As for Twain, I’m more partial to another quote of his these days (though it has absolutely nothing to do with the topic:

“Eat a live frog first thing in the morning, and nothing worse will happen to you the rest of the day.”

Told you it had nothing to do with anything.

Charles’ article deals with money supply and the velocity of money. Familiar terms for Automatic Earth readers, though we use them in a slightly different context, that of deflation. In our definition, the interaction between the two (with credit added to money supply) is what defines inflation and deflation, which are mostly -erroneously- defined as rising or falling prices.

I don’t want to get into the myriad different definitions of ‘money supply’, and for the subject at hand there is no need. The first FRED graph below uses TMS-2 (True Money Supply 2 consists of currency in circulation + checking accounts + sweeps of checking accounts + savings accounts). The second one uses M2 money stock. Not the same thing, but good enough for the sake of the argument.

In his piece, Charles seems to portray the two, money supply and velocity of money, as somehow being two sides of the same coin, but in a whole different way than we do. He thinks that the money supply can drive velocity up or down. And that’s where I think that just ain’t so. I also think he defeats his own thesis as he goes along.

…click on the above link to read the rest of the article…

Living a Lie

December 11, 2015

Living a Lie

“Above all, don’t lie to yourself. The man who lies to himself and listens to his own lie comes to a point that he cannot distinguish the truth within him, or around him, and so loses all respect for himself and for others. And having no respect he ceases to love.” – Fyodor Dostoyevsky, The Brothers Karamazov

The lies we tell ourselves are only exceeded by the lies perpetrated by those controlling the levers of our society. We’ve lost respect for ourselves and others, transforming from citizens with obligations to consumers with desires. The love of mammon has left our country a hollowed out, debt ridden shell of what it once was. When I see the data from surveys about the amount of debt being carried by people in this country and match it up with the totals reported by the Federal Reserve, I’m honestly flabbergasted that so many people choose to live a lie. By falling for the false materialistic narrative of having it all today, millions of Americans have enslaved themselves in trillions of debt. The totals are breathtaking to behold:

Total mortgage debt – $13.6 trillion ($9.9 trillion residential)

Total credit card debt – $924 billion

Total auto loan debt – $1.0 trillion

Total student loan debt – $1.3 trillion

Other consumer debt – $300 billion

With 118 million occupied households in the U.S., that comes to $145,000 per household. But, when you consider only 74 million of the households are owner occupied and approximately 26 million of those are free and clear of mortgage debt, that leaves millions of people with in excess of $200,000 in mortgage debt. Keeping up with the Joneses has taken on a new meaning as buying a 6,000 sq ft McMansion with 3% down became the standard operating procedure for a vast swath of image conscious Americans. When you are up to your eyeballs in debt, you don’t own anything. You are living a lie.

…click on the above link to read the rest of the article…

The Wall Street Ponzi At Work——The Stock Pumping Swindle Behind Four Retail Zombies

August 18, 2015

The Wall Street Ponzi At Work——The Stock Pumping Swindle Behind Four Retail Zombies

In the nearby column Jim Quinn debunks Wall Street’s latest claim that the American consumer is bounding back. He points out that on an inflation-adjusted basis retail sales are barely higher than they were a year ago, and, for that matter, are still only 4% greater in real terms than they were way back in November 2007.

That’s right. Nearly eight years and $3.5 trillion of Fed money printing later, yet the vaunted American consumer is struggling to stay above the flat line, not shopping up a storm.

And there is no mystery as to why. After a 40-year borrowing spree culminating in the final mortgage credit blow-off on the eve of the great financial crisis, the US household sector had reached peak debt. It was tapped out with $13 trillion of mortgages, credit cards, auto, student and other loans —–a colossal financial burden that amounted to nearly 220% of wage and salary income or nearly triple the leverage ratio that had prevailed before 1971.

So, as is evident from the graph above, we are now in a completely different economic ball game than the consumer debt binge cycle that culminated in 2008. Households are deleveraging out of necessity, and that means that consumer spending is tethered to the tepid growth of national output and wage income.

Yet sell side economists and the financial press are so desperate for factoids that confirm the Keynesian “recovery” narrative——that is, the false claim that the US economy has been successfully lifted out of a growth rut by mega-injections of fiscal and monetary “stimulus”—— that they get just plain giddy about Washington’s seasonally maladjusted, endlessly revised monthly data squiggles.

Thus, in response to the 0.6% gain in July retail sales, The Wall Street Journal’s headline proclaimed, “In a Show of Confidence, Americans Boost Spending”.

…click on the above link to read the rest of the article…

Whatever Became of Economists and the American economy

February 23, 2015

Whatever Became of Economists and the American economy

According to the official economic fairy tale, the US economy has been in recovery since June 2009.

This fairy tale supports America’s image as the safe haven, an image that keeps the dollar up, the stock market up, and interest rates down. It is an image that causes the massive numbers of unemployed Americans to blame themselves and not the mishandled economy.

This fairy tale survives despite the fact that there is no economic information whatsoever that supports it.

Real median household income has not grown for years and is below the levels of the early 1970s.

There has been no growth in real retail sales for six years.

How does an economy dependent on consumer demand grow when real consumer incomes and real retail sales do not grow?

Not from business investment. Why invest when there is no sales growth? Industrial production, properly deflated, remains well below the pre-recession level.

Not from construction. The real value of total construction put in place declined sharply from 2006 through 2011 and has bounced around the 2011 bottom for the past three years.

…click on the above link to read the rest of the article…

‘Peak Debt’ At Work: Savings at the Pump Are Staying in Consumer Wallets

February 2, 2015

‘Peak Debt’ At Work: Savings at the Pump Are Staying in Consumer Wallets

Americans are taking the money they are saving at the gas pump and socking it away, a sign of consumers’ persistent caution even when presented with an unexpected windfall.

This newfound commitment to frugality was illustrated this past week when the nation’s biggest payment-card companies said they aren’t seeing evidence consumers are putting their gasoline savings toward discretionary items like travel, home renovations and electronics.

Instead, people are more often putting the money aside for a rainy day or using it to pay down debt. That more Americans are saving their bounty at the pump comes as a surprise, because the personal savings rate, after rising during and after the recession, has declined steadily over the past two years.

“We haven’t seen the extra savings from lower gas prices translate into additional discretionary consumer spending,” said Ajay Banga , chief executive of MasterCard Inc., on a conference call Friday to discuss quarterly earnings.

…click on the above link to read the rest of the article…

Dead malls: Half of America’s shopping centres predicted to close by 2030

January 28, 2015

Dead malls: Half of America’s shopping centres predicted to close by 2030

The obituaries are being written for what has been an intrinsic part of American culture for half a century, as the country’s ubiquitous shopping malls face a slow, painful death.

As shopping and driving habits change, retailers are facing difficult times, and some have estimated that over the next 15 years half of America’s malls will die.

The shopping mall was born into a world where people were moving out of the cities and into a new, rich, indulgent life.

Amy Ginsberg’s teenage years centred around White Flint Mall in Maryland.

“There were glass elevators and marble and high-end stores,” she said.

“When I was in high school in the 70s and 80s there was nowhere else to go, really.

“The mall was where the stores were, it’s where the movie theatres were.

“You would just go to the mall and hang out.”

But White Flint’s doors closed this month.

Like so many malls in America it had been ‘dead’ for a while – the term used when a mall’s occupancy rate falls below 70 per cent and it is on a downward spiral.

Mark Hinshaw, an architect, city planner and author, has been watching the decline.

…click on the above link to read the rest of the article…

Manufacturing Hit by Oil-Price Plunge? Southeast Worst Since Financial Crisis

January 21, 2015

Manufacturing Hit by Oil-Price Plunge? Southeast Worst Since Financial Crisis

Atlanta Fed suspects oil bust, strong dollar.

Despite President Obama’s emphatic assurances in the State of the Union Address that “our economy is growing and creating jobs at the fastest pace since 1999,” there have recently been some uncomfortable squiggles, so to speak.

The collapse in the prices of oil, natural gas, and natural-gas liquids has started to make its imprint on the largest hydrocarbon producer in the world, namely the US of A. Oilfield layoffs and project cancellations are raining down on the oil patch on a daily basis. Suppliers are hit too. Many energy stocks are in the process of evisceration. Energy junk bonds are in a rout.

But consumers love it – those who aren’t losing their jobs over it – because they spend less on fuel. Consumers are voters. So politicians love it because voters love it. Hence, it’s good for the economy. I get that.

These sorts of squiggles have been worming their way into national numbers. For example, Markit’s Services PMI for December dropped to 53.3, down for the sixth month in a row, after having peaked in June. This was “not just a one-month wobble,” the report said, as the economy “lost significant growth momentum at the close of the year.” But it remained above 50, the dividing line between expansion and contraction. It’s still an expansion, and “growth is merely slowing from an unusually powerful rate rather than stalling.”

…click on the above link to read the rest of the article…

What the Heck Is Happening to US Manufacturing?

January 21, 2015

What the Heck Is Happening to US Manufacturing?

The worst month in the Southeast since the Financial Crisis.

…click on the above link to read the rest of the article…

Crushing The “Lower Gas Price = More Spending” Fiction | Zero Hedge

December 3, 2014

Crushing The “Lower Gas Price = More Spending” Fiction | Zero Hedge.

Caveats to the equation: lower gas prices = more spending

Aside from the long-standing issues of minimal income growth and lackluster job creation, consumers have become accustomed to an end-of-the-year price reprieve at the pump, and in some cases are simply using the increased funds to offset rising utilities and health care costs. We explore the various facets of this in further detail below:

1) Consumers have become accustomed to extreme volatility in energy prices. Particularly around this time of year, consumers are increasingly familiar with energy price reprieve from summer gas prices and no longer adjust their long-term spending habits as much, or at all, based on short-term price fluctuations.

Since reaching a high of $3.69 in June, average gas prices have fallen more than fifty cents a gallon, to a monthly average of $3.17 as of October, and have continued to fall throughout the early weeks of November. While impressive, this four-month decline is hardly unusual. In 2011, retail gasoline prices fell from an average monthly high of $3.91 in May to $3.27 by year-end, a decline of nearly sixty-five cents over seven months.

Then again in 2012, after ratcheting up to $3.85 at the end of September, gasoline prices tumbled more than fifty cents a gallon in just three months, down to $3.31 before turning the corner to 2013. And finally, last year told a similar story of lower energy prices before the holidays, dropping nearly thirty-five cents by the end of the year to $3.28 a gallon.

In each case, retail spending was hardly robust with an average monthly sales pace of 0.4% over the past four years. In fact, the largest monthly increase was in September 2012, up over 1%, thanks to a hefty increase in electronics purchases corresponding to the release of the iPhone 5. This September, retail sales saw a similar boost from the release of the iPhone 6.

…click on the above link to read the rest of the article…

Consumers Simply Never Showed Up | Alhambra Investment Partners – We Are Different.

November 16, 2014

Consumers Simply Never Showed Up | Alhambra Investment Partners – We Are Different..

The largest calendar segments of the retail universe are back-to-school followed closely by Christmas. The peak month for back-to-school is August which is usually the third or fourth biggest month of the year in terms of raw retail sales; with October right behind as Christmas retailing ramps up. September, which falls in between back-to-school and Christmas (at least historically), was relatively decent this year (4.46%) given the low standard of the post-2012 economy, but August was a plain mess which was far more important. Y/Y growth in August (ex autos) was just 2.5% which is so far below the 6-9% that “should” be evident in a recovery as to warrant some other classification.

That left retailers wondering if August was the aberration or September. With October’s figures having been released, unfortunately the August pattern has shown up at the start of the Christmas season as whatever happened to “boost” September was gone by the following month. The most important part of the retail calendar kicked off with all of 2.36% nominal growth over October 2013 – a month that inaugurated, at least to that point, the slowest Christmas season since 2009. In comparison, October 2013 saw 3.17% nominal growth, which is why retailers might want to start worrying (apart from auto dealers, of course).

…click on the above link to read the rest of the article…

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