Retail Sales Plunge "Unexpectedly"

Given that 600,000 to 700,000 jobs have been lost every month for 5 consecutive months, it should not take a lot of brainpower to figure retail sales are unlikely to recover anytime soon. Nonetheless, the headline reads Retail sales fall unexpectedly in March.

Retail sales fell unexpectedly in March, delivering a setback to hopes that the economy's steep slide could be bottoming out. President Barack Obama and Federal Reserve Chairman Ben Bernanke said in separate speeches Tuesday that while other recent economic signs have been hopeful, problems persist and a true recovery will take more time.

The Commerce Department said retail sales dipped 1.1 percent in March. It was the biggest decline in three months and a much weaker showing than the 0.3 percent increase that analysts expected.

A big drop in auto sales led the overall slump in demand. Sales also plunged at clothing stores, appliance outlets and furniture stores.

The overall economy, as measured by the gross domestic product, fell at an annual rate of 6.3 percent in the final quarter of last year, the biggest slide in a quarter-century led by the largest drop in consumer spending in 28 years. Consumer spending is closely watched because it accounts for about 70 percent of total economic activity.

The 1.1 percent drop in retail sales last month followed a revised 0.3 percent increase in February, originally reported as a 0.1 percent fall. Retail sales rose 1.9 percent in January, which followed six straight months of declines.

For March, auto sales fell 2.3 percent, following a 3 percent drop in February. Auto sales in March were 23.5 percent below year-ago levels as automakers struggle through their deepest downturn in decades.

Excluding autos, retail sales fell 0.9 percent after a 1 percent rise in February. That also was worse than analysts' forecasts of a flat reading for last month.

Sales at appliance stores fell 5.9 percent last month and furniture stores reported a 1.7 percent decline. Sales at specialty clothing stores fell 1.8 percent and dipped 0.2 percent at general merchandise stores, a category that includes Wal-Mart Stores Inc., Target Corp. and Macy's.

Sales at gasoline stations fell 1.6 percent, while food and beverage stores saw one of the few increases for the month, a rise of 0.5 percent.

The current recession began in December 2007 and is expected to become the longest downturn in the post World War II period. While many economists believe it could end by this fall, they expect unemployment will keep rising until this time next year, possibly as high as 10 percent.

Calculated Risk has some nice charts on Retail Sales in Retail Sales Decline in March.

On a monthly basis, retail sales decreased 1.1% from February to March (seasonally adjusted), but sales are off 10.7% from March 2008 (retail and food services decreased 9.4%). Automobile and parts sales declined 2.3% in March (compared to February), but excluding autos, all other sales declined -0.9%.

The following graph shows the year-over-year change in nominal and real retail sales since 1993.



click on chart for sharper image

Savings Not Sales Will Fuel Recovery

A true recovery will be dependent not on sales but on savings. Thus President Obama and Bernanke are either clueless or disingenuous with their statements. Moreover, hope that the recession is over by this fall is misguided. If by some miracle (or economic fudging of numbers) GDP rebounds in the 4th quarter it will be short-lived.

Those betting on an "L" shaped recession or a series of "W" shaped recessions where the economy is weak and slipping in and out of recession for another 2-10 years (just as happened in Japan) are more likely to be correct. I made the Case for an "L" Shaped Recession on Apil 8, 2008 and see no reason to change it now. At the time, talk was of a $1 trillion writedown. Fast forward to today ....

Toxic Debts Could Reach $4 Trillion

We have already had $1.29 trillion in writedowns and now the IMF warns Toxic debts could reach $4 trillion.

Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.

The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.

Banks and insurers, which so far have owned up to $1.29 trillion in toxic assets, are facing increasing losses as the deepening recession takes a toll, adding to the debts racked up from sub-prime mortgages. The IMF's new forecast, which could be revised again before the end of the month, will come as a blow to governments that have already pumped billions into the banking system.

The IMF's jump will come as little surprise to economists who have suggested that the bad debts will be much higher than anticipated. Nouriel Roubini, chairman of RGE Monitor, expects bad debts from US-originated assets to reach $3.6 trillion by the middle of next year. This figure is expected to rise when bad debts from assets elsewhere are calculated, he said.

Given that these writedowns are funded directly on the back of taxpayers who have virtually nothing but job losses to show for the trillions of dollars sloshed around by Bernanke, Geithner, and Obama, those expecting a quick, sustainable economic turnaround are in Fantasyland.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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