Retail Sales Down 2.8% in October

Yet more evidence that consumers are hurting. From the Wall Street Journal:

U.S. retail sales took a record dive in October as consumers afraid for their jobs continued a retreat heading into the holiday shopping season and cut back spending on a wide variety of goods ranging from cars to furniture to electronics.

Separately, U.S. import prices fell at a record pace last month, further evidence that falling oil prices and the slowing global economy are having a rapid damping effect on inflation. Assuming that trend is confirmed by upcoming producer and consumer price reports, Federal Reserve policymakers should have added flexibility to address the credit crisis through liquidity programs and even more rate cuts without worrying about an inflationary outbreak.

Retail sales tumbled 2.8% last month, the Commerce Department said Friday. It was the fourth drop in a row. Sales in September decreased 1.3%, revised down from an originally estimated 1.2% decline.

Economists expected a 2.4% drop in sales during October, the first month of the fourth quarter. The 2.8% drop was the largest since records began in 1992. The previous record was a 2.65% decline in November 2001.

Further commentary from Bloomberg:

The 2.8 percent decrease was the fourth consecutive drop and the biggest since records began in 1992, the Commerce Department said today in Washington. Purchases excluding automobiles also posted their worst performance.

Spending may continue to falter as mounting job losses, plunging stocks and falling home values leave household finances in tatters. Retailers from Best Buy Co. to Nordstrom Inc. are cutting revenue forecasts ahead of what may be the worst holiday shopping season in six years.

“Consumers are hunkering down,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “We’ll see that through the holiday season and well into next year. The fourth quarter is going to be particularly nasty.”

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  1. River

    Where are the ‘inflationistas’ now? It takes two to tango. The Fed can continue to push on the string but consumer sentiment is against them. Banks might be willing to lend but are consumers willing to borrow/buy? So far, the answer is no. Paying down credit is a deflationary move; for every dollar of credit paid down many more dollars are removed from the system…fractional reserve banking, eh what?

    The psychology of the citizens is often overlooked when the study of recessions/depressions is undertaken.

    It will not be easy to intentionally flood the system with enough liquidity to cause inflation. As soon as foreign investors smell the printing presses running they will be reluctant to purchase more treasuries…and, foreigners are going to need every piece of currency that they can lay hands on for their own rescues.

  2. River

    Excellent post on this topic (not as good as Yves, but good) from Paul Krugman in the NYT.

    'Op-Ed Columnist
    Depression Economics Returns
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    Published: November 14, 2008
    The economic news, in case you haven’t noticed, keeps getting worse. Bad as it is, however, I don’t expect another Great Depression. In fact, we probably won’t see the unemployment rate match its post-Depression peak of 10.7 percent, reached in 1982 (although I wish I was sure about that).

    We are alrady, however, well into the real of what I call depression economics. By that I mean a state of affairs like that of the 1930's in which the usual tools of economic policy – above all, the Federal Reserve's ability to pump up the economy by cutting interest rates – have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.'…snip…

  3. S

    Rumors abound about legislation to take the bad assets off the Fed’s balance sheet and move them into the TARP. The governement is the Super SIV, which is what Krugman believes the role of the US governement to be in times like this. A good keneysian. Somehow in the definition of capitalism they left out the clause that bondholders are sacrosanct. Whether it is inflation of deflation the US gov’t is functionally insolvant. If indeed we do see the great deflation (are seeing) and we use local sales tax receipts as a proxy (or NYC expected tax receipts given the financial bust) then we can safely assume that all those CBO projections are worthless. The Fed revenues are going to tank right along with the masive print job. Equation equals insolvency. If we see the bursting out of velocity conundrum and that liquidity finds its way into the system, yields swell and the appetite for treasury retards forthwith. There simply is no walking the tightrope anymore. The ideas/news around the world do not support the continued US appetite for capital. Further, the idea that the world is in a rush to support the US is the greatest myth going. this is even bigger than the we went in first and thus are ahead of the curve; only perhaps in the race to bankruptcy. when we start hearing secular not cyclical we might begin to make the necessary changes to restruture. Don’t count on it.

  4. halbhh

    “Retail sales are down 4.1% in the past year.” Marketwatch 11/14/08

    But, also, a surprising and nice bit of news!:

    “China’s retail sales remained robust in October, a positive sign for Chinese leaders who want to boost consumer spending to insulate the economy from a global slowdown.

    Retail spending rose 22 percent in October from a year earlier, the National Bureau of Statistics said Wednesday.”

    So….the beginnings of balancing are underway.

    While it appears a depression is very possible, at least there are possible ways to avoid one.

  5. halbhh

    By “possible” I don’t mean likely. It would take clear and insistent work by the new administration not only here but in relationship with China.

  6. halbhh

    Whoops, left out the full picture:

    “Sales excluding gas dropped 1.5%, the biggest decline in three years. Excluding both autos and gas, sales fell 0.5%.”

    — “Retail sales plunge…”

    But despite the headlines, actually, sales didn’t “plunge”.

    “Plunge” would be excluding gasoline down 3% or more.

    Instead, sales only weakened moderately.

  7. S

    Anonymous said…

    Interesting read on the itulip thoery. Few things: China story being interested in more gold would comport with the idea of getting the rest of world to sell treasuries. The quetion is for every seller there has to be a buyer. That is not an introduction of new money into the system, rather it is a dollar drain from someone else. And that buy would have to be compelled to account for the potential of new supply and hence the blowout in yield. What am I missing.
    Also such a system works as long as the system the US is playing in remains in quasi equilibium. One might argue that the US has only the flexibility that the rest of the world accords. What if the oil producer decided to subtly begin pricing in euro or a basket? All of a sudden the artificial dollar demand is amerliorated. What if the US found itself playing a different game but acting on old rules?

    Also, when the dollar was being devalued (’00-’08), the others were exploiting the system for their own industrialization. In other words the others were acting irrationally. why would they continue to do so? In short they cooperated. That system is collapsing so why is it assumed that the US is the only one with the flexibility to act. ironic as the worlds greatest debtor.
    Finally, any selling of treasury would create a self reinforciong mechanism of higher rates and lower consumption. if you don;t belive in the higher rate results then you are arguing deflationary forces are so great they would overwhelm (mish). Any new buyer on the long end would demand a higher premium as in the 30 year auction yesterday. The net result of concerted central bank selling would be for longer rates to blow out (operation twist precurser to the late seventies blowout), which is what you drive at in the bond charts. But the aggregate level of debt in the US far exceeds that of the 70s. So does the wage stagnation situation. So rising interest rates would exacerbate the asset deflation that is really playing catch up with the globalization induced wage compression. That deflation is not a monetary phenom, rather a structural adjustment to reflect new supply on the labor side. If that arbitrage is to be permanently reversed than it would seem that energy costs (long oil) would have to be manifestly higher so the transport premium bridges the wage gap. The US doesn’t have the stomach for such a transition and so will continue to think of ways to lower the cost of debt while printing. Indeed there is a column in the markets section FT by Rob Kessler addressing this very issue as regard supressing 10 year yields.

    In summary, the deflation camp confronts the stuborn 10 year yields. While it is hard to disagree that the final outcome will be a currency devaluation (see this article via jessecafe:
    the idea of inspiring the central banks to sell seems convenient but that would be aking to throwing the towel in on the entire US model. That will be a last resort and the will come with the devalution. The US will not do that until it has figured out a new way to fund itself. The implications of that are dire for Americans who are about to find out that the Us government doesn’t work for you.

  8. doc holiday

    I love this blog (not as much as Yves thing of course):

    Deflation is sometimes likened to Dante’s Inferno. “Abandon all hope”once you step into that Hellfire. We are not there yet but Mervyn King, the Governor of the Bank of England, says it is now “very likely” that the UK retail price index will turn negative next year. This is a drastic reversal of the oil and food spike that played such havoc with monetary policy over the summer. “The world changed in September,” said the Governor. The Bank’s fan charts point to zero inflation at current interest rates of 3%, but the startling new feature is that price falls could gather pace.

  9. doc holiday

    One more:

    “The retailers are just confirming what everybody already knows; the economy is in bad shape, people are not spending,” said Malcolm Polley, president of Stewart Capital Advisors in Indiana, Pennsylvania, which manages $1 billion. “We have too many retailers and some of them will go away.”

  10. doc holiday

    And another..

    Traders say the market is still feeling out the future, trying to make “heads or tails” of the stuff stuffed in that pinata full of bailout “Frankensteins,” and fretting over the overall situation with supply and the dilution of treasuries’ value. The possibility that the “Frankensteins” could turn on their creators before getting chased into the woods by roving bands of unhappy, torch wielding taxpayers, er, villagers, is another issue being bandied about..

    Keep an eye on short term Treasuries!

  11. Anonymous

    This is no surprise. The retailers, led by Wal-mart, have been a driving force for the off-shoring movement.

    The unemployed, the working poor, and the indebted middle class don’t have the coinage to consume.

    Wal-mart loves a good depression and has been leading the country in that direction for a long time. It is really good for their business.

  12. Anonymous

    “We have too many retailers and some of them will go away.”

    We have too much of just about everything. I just stood at a 2’x12’x6′ shelf of natural/energy/whatever bars. How many choices do we really need. Look at the shelf space dedicated to pasta sauce in your typical suburban grocery store. It’s astounding — particularly as viewed through the lens of the times.

  13. halbhh

    You know, in fairness, the most meaningfully accurate headline would be:

    Retail sales (ex gasoline) down modestly in surprise consumer strength.

    See my posts above for numbers.

    For context it’s a surprise to me, as I expected a real collapse, like -8% yoy ex gasoline.

    Didn’t happen. Not even halfway.

  14. Anonymous

    well halbhh most consumers still have a few hundred left on their six credit cards before they max them this holiday. I wonder what the return rate for gifts is going to be this time around?

  15. River

    anon at 11:20 AM…

    I followed your link to itulip but I was not willing to register so did not read the link. Thanks anyway.

    I do not believe that we will have inflation in the near future, for reasons that become more obvious every day…at least, obvious to me.

    Nor do I believe that the discussion about deflation/inflation is too difficult to understand for those that do not believe that we will have inflation near term.

    Anyone putting forth such an arguement must not have much firm ground to stand on…The debate itself is not surprising for much of the population would benefit from a bout of inflation.

    Many here tend to use a great deal of verbiage about the R/D question when it is not necessary. All one has to ask is ‘Will the Fed/Treasury be successful in enticing the citizens to continuing to borrow and spend?’ As I pointed out above, so far the answer is a firm no. Those running the show made the awful mistake of causing fear in the citizens. They still are not aware of what they did wrong…that is how out of touch they are.

    FDR understood that one of the underlying causes of the continuation of depression was the fear instilled in the people. He made that obvious when he said ‘all we have to fear is fear itself’…But, Bernanke seems unaware of the the current fear in the public consciousness. Maybe the ‘fear’ speach is being saved for Obama?

  16. Anonymous

    Agree with halbhh, actually (maybe) good news.

    One could even argue that all of the decline was the ultimate result of dropping oil prices.

    All in all not bad numbers considering that everyone said the consumer hit a wall.

    As to what this says about a change in spending/savings habits, I am not very optimistic. They aren’t hurt yet….

  17. Anonymous

    Elijiah Cummings said “People that are losing their houses are gonna be helped”

    Treasury said ” We are stabilizing Freddie and Fannie to bring down rates to consumers to stabilize housing prices. Bringing down rates is the best thing that we can do. “

    Dissonance Alert: Why in the world do we want to “stabilize” housing prices ? We need to isolate a segment of speculative prices in a special program that allows the capital prices paid, less a shared loss, to mirror the competitive market prices. The age of synthetic market prices has to come to a close.

  18. River

    Anon at 7:38…

    I do not believe that those employed in any facet of the auto or furniture business would agree with your rosy outlook.

    ‘Motor vehicle and parts dealers sales were down 23.4 percent (±2.1%) from October 2007 and sales of furniture and home furnishings stores sales were down 13.5 percent from last year.’

    The employees in these fields think that the sky is falling.

    ‘Retail Sales Plunge Most On Record’

  19. s

    River fdr devalued the dollar while he was saying that but about fear. And the depression went on for another 7 years until war struck.

  20. Anonymous

    “Paying down credit is a deflationary move; for every dollar of credit paid down many more dollars are removed from the system”

    you mean for every dollar of credit that defaults correct? credit paid down is available for reinvestment into this fractional reserve system. worst case is it doesn’t get levered again due to lack of borrow interest, there’s not an exponential number of dollars removed from the system.

  21. Anonymous


    Concur with your thoughts on consumer psychology at the present. In fact I feel they are out of equation for the time being. Any family out there now, not reducing debt and making provisions for future possibility’s is morally bankrupt too.

    I my self shredded all but one credit card years ago, bad financial tool. Why would I need to pay interest on my spending/hard work out of connivance?
    In my reading/interpretation of facts, its credit card company’s that started all of this via deregulation of accounting/contractual standards, advanced/predatory/psychological warfare/advertising campaigns on the citizenry. The housing/mortgage markets just borrowed the formula and took it up a notch.

    The hole credit system is geared to over stretching ones assets. In fact the pyramid has been turned upside down as its now necessary for the consumer to fix things, and has the real control of the market.

    Not unlike the Mining industry in America. Citizens given social license to the powers to be as a vehicle to wealth/posterity, with out the knowledge of the said industry’s long term impacts to the economy/environment they lived in and long term generational conseqes. Jarred Diamonds bitterroot valley is a good comparison.

    Now citizens are getting screwed for their social license to Financiers, via financiers total disdain for the working class/wage slaves/well of their wealth. If word of the real mechanisms/people responsible for the mess we are now coming to terms with ever got out, well it would get very messy. China has a long standing punishment for corrupt government/business people. But this is America and would think a long march through the streets to Key West, FL. and then paddle to Git-mo would suffice.


  22. Anonymous

    Guys, I need your help! I have been reading that no one can time. If this were true, then how come the blog belwo has been timing the tops and bottoms of the market before they happen or as they happen practically without fail. If you think that this is not true, I have been following the blog but you can check it yourself by looking at pages cached by google. (Google bots do not lie, and the cache material with a time-stamp). Therefore, the information on the blog is honest and accurate.

    Here is a sample of predictions:

    1. Bottom of October 10:

    2. Bottom of October 10:

    3. Top of November 4(election day top),

    4. Bottom of November 13,

    5. Bottom of November 14 (today):

    How can these people do this, and the rest of the people lose their money?

  23. Anonymous

    As for mining, we can only be as rich as the earth because we come from it. Every element and molecule in our bodies was scraped, dug, pumped, and grown from the earth.

    But my main point. What deflation or depression? During the depression food was very cheap. How about 25 hamburgers for a dollar? Food prices are going up at present at a surprising rate. So are college costs, insurance, medical, heating and electric bills, munincipal taxes, alcohol, tobacco, loan-related costs, etc. What is deflating?: the ever-fluctuating gas/diesel commodities and speculative investments such as stock and real estate I only wish the real cost of living would collapse, then people with a cash position would at least prosper. Ironically, hard times will force the gov to raise taxes, particularly at the local level. Not much chance we will see rollbacks in sales taxes, State income taxes, property taxes, gas taxes, toll roads, parking tickets, and licensing in 2009- let alone rent, heat, college, or food.

    Not arguing with anyone here, all of the discussions on this site are interesting and I learn a lot from them.

  24. Doug


    Deflation usually means “a decrease in the general price level”.

    Obviously, this is not happening.

    perhaps usage of the term “Deflation” as used by posters on this board means:

    “Alternatively, the term was used by the classical economists to refer to a decrease in the money supply and credit; some economists, including many Austrian school economists, still use the word in this sense.”

    So perhaps the credit contraction and decreased velocity of money is what posters are alluding to when they use the term “deflation”.

    It would be interesting if we witness continued credit contraction coupled by an increase in the general price level.

    Watch Gold for clues.

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