SIGNS OF RECOVERY?

I see in the economic journals that November retail sales reports are not what were expected. Though analysts are putting the best spin on on the figures they can. Last year, buyers went into a “defensive crouch” resulting in a whopping 8% drop in sales. This year (according to http://www.msnbc.msn.com/id/34254816/ns/business-retail/) economists expected growth in retail sales of about 3-4% based on projections from September and October, but early analysis of available data from stores reporting monthly sales, December registered a decline of 0.3%! The biggest declines were in the more upscale stores, such as Macy’s and Sacs, bargain basement while others did a little better. This cast a pall over the hopes of retailers who turn much of their profit during the Christmas season. Since retail spending accounts for 70% of all US economic activity, this measure is like the wrist-pulse of the physician for the economist. Some analysts attribute the poor figures to the usually warm weather—which was more spring-like than Christmas-like.

However, today (December 11), the more inclusive Commerce Department (CD) figures were published and they suggest a slightly better picture--a paltry 1.3% increase in November, less than the 1.4% increase in October, but no matter, it was good enough for economists desperate to find some signs of silver in the grey clouds overhead. These CD figures include the sale of gasoline, which experienced a sharp rise in prices last month, and consequently skewed the values up a bit. Without gasoline prices the retail sales growth is about 0.8 % for November. (See: http://money.aol.com/article/stock-futures-hold-gains-after-retail/811170?v=aolrss) A less rosy look at these numbers reveals a sharp decline from October’s values (1.4%) in the run up to the Christmas buying season. The same report (op cit) touts the fact that Chinese exports only 1.2% last month, “the smallest drop this year. They posted a decline of more than ten times that amount in October (which was nearly 14% down). Though again, that value may be more the result of the optimism of a few buyers for large concerns who made their plans months ago and has little to say about how much American families will spend for the critical Christmas season. So for this observer the over-all economic picture does not portend well for retail sales this Christmas season.

How can it be otherwise with ten percent of the labor force idle?

But let’s look more closely at those employment figures.
Of the 304 million US population, 155 million are categorized as the “US labor force” (See http://www.bls.gov/news.release/empsit.nr0.htm). In November 2009, some 15.4 million of in that group were listed as formally “unemployed”. That is how the 10% unemployed figure is calculated. But also listed are 9.2 million employed only part-time (these are the involuntary part-time workers who can not find a full time job), there are also some 2 million discouraged workers who have sought employment in the past 12 months. They are remain in the unemployed category but are not counted in the formal figures. The actual rate of idle workers may be calculated thus: 15.4+ 9.2+2= 26.6 million idle out of 155 million workforce, or about 17 %. Thus nearly a fifth of the workforce is idle. That is a large percentage of workers who will not be able to walk into a retail store and purchase freely—as our retailers would like.

In the past many of these idled workers, part-time employed, and discouraged workers might have made purchases with “plastic”. But that has changed too. In an MSNBC piece entitled “Credit card debt, terms limit holiday sales”, Allison Linn (http://www.msnbc.msn.com/id/34347297/ns/business-consumer_news/?ns=business-consumer_news&from=ET) lists how and why that avenue of more robust Christmas sales has been shut down this season.

Linn notes several startling facts in her story. She reports that “revolving debt” which is another name for credit card debt in now nearly one trillion dollars! Astounding! That figure has been falling steadily for the last 13 months ---perhaps out of necessity. Banks simply don’t have the money to lend and are more leery of problem lenders. But outstanding credit card debt in the US, after falling a paltry 1% since September last year, still stands at nearly $900 billion dollars! (according to Linn these are recently released Federal Reserve figures which I could not easily verify). That amount, $900 billion dollars, (if accurate) represents an equivalent of nearly $3000 dollars in credit card debt for every man, woman and child in the US. But since the unemployed have likely suspended their use of “plastic” the modest change in that figure may be more a function of unemployment and unavailability of credit than a wised-up and less profligate population.

Another jaw-dropping fact Linn includes is that nearly 14 million US citizens are still paying for credit advanced to them for items purchased last Christmas season!! Many have likely reached their debt limit or had that limit reduced by their credit card company and thus are struck with only cash-on-hand for spending this year. Linn notes that nearly 60 million people have had their credit limits reduced between April 2008 and April 2009 and these would not or could not add to that debt. But for the consumer this is not the worst that could happen.

Consider that credit card interest rates have gone up…without warning or even a polite notice to card holders-- while bank interest rates on deposits have fallen sharply. A cash deposit in your local bank will earn only a paltry 1.2%, while your credit card company is now charging nearly 14% on the amount it advanced you perhaps last Christmas. And that number is up 2% from the 12% they were charging in May 2008

So what about the rosy view of the recovery? Think again…the average consumer out there is underemployed, underpaid, overburdened with debt and not happy. There appears to be a few more shoes to drop.

Get the picture?

rjk