Retail sales plunge in October; retail employers are cutting back

The U.S. Census Bureau announced on Friday that retail and food services sales for October 2008 with seasonal adjustments was down 2.77% from September and down 3.48% compared to a year ago. Economists had expected a decline of 2.1%. Retail sales without including autos (excluding autos makes the data less volatile) was down 2.20% compared to the previous month and up 1.38% compared to the previous year. Retail sales adjusted for inflation declined by 7.69% in October compared to the previous year. This is the worst annual decline since June 1980.

This graph on the right looks at retail employment versus regular employment year over year change. From 1968 - 1987, retail employment was stronger than regular employment. From 1987 retail employment has declined more at the lows and has had drops where regular employment was flatter. Currently more jobs are being lost on the retail side than in the general economy. The retail sector seems to be bracing for a rough recession.

Sphere: Related Content

The End

Michael Lewis, one of my favorite authors, takes a look at the progression of Wall Street from when he wrote Liar's Poker in 1989 to end of Wall Street as we know it, delving into the world of leverage, credit default swaps, and CDOs.

Michael Lewis writes:

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind.

The article is, in my opinion, a must read.

Sphere: Related Content

Pending home sales rise year over year; NAR lowers price forecast

On Friday, the National Association of Realtors released the Pending Home Sales Index for contracts signed in September 2008. On a seasonally adjusted basis the index was at 89.2 down 4.6% from September 2008 and also up 1.6% compared to September 2007's figure of 87.8. 2001 was previously the slowest year for pending home sales on record. September 2008 was 4.7% higher than September 2001's sales pace. This is the first time since June of 2007 that the 2001 pace was eclipsed.

The increases in pending sales was due to a large increase in the West. Seasonally adjusted the West saw an increase of 3.7% month over month and 39.6% year over year. Each of the regions declined by an average of averaged an increase of 8.5% month over month and 7.9% year over year. This is due to a large decrease in home prices in the West in August. Median home prices in the West dropped from $282,000 in July to $251,600 in August and went back up to $253,600. The median home price in the West is down 39.5% year over year. The other three regions are down by an average of 7.9%.

The NAR made a downward adjustment in their median home sales price forecast for 2008 from $200,700 to $198,600. The NAR is forecasting 2009 median home sales prices to be at $200,800. Just a couple of months ago, their forecast for median sales prices in 2009 was $215,800. October median home sales prices will be announced later this month, but they must not have been pretty. We are now entering into a period where pending home sales slow down dramatically. The credit crisis is exasperating things.

Sphere: Related Content

The unemployment rate spikes to 6.5%; over 1 million jobs lost so far this year

The U.S. Department of Labor released the Weekly Claims data for Unemployment Insurance yesterday. Initial claims were at 481,000 for the week ending November 1st. This is up from the previous week's number of 479,000 but down from the recent high of 499,000 reached for the week ending September 27.   The four week average of initial claims, which is not as volatile, was at 475,250 the same as the previous week. 

Continued claims for unemployment insurance increased to 3,843,000 for the week ending October 25th up from the previous week's number of 3,721,000. This is the highest it has been since February 1983. The four week average for continued claims was also up to 3,754,000 from 3,711,000.

Initial claims is faster to move up and signals increases in the unemployment rate.  Continued claims take longer to go down than the initial claims once the unemployment rate is elevated.  The Unemployment rate doesn't drop until continued claims start to come down.

Unemployment is on the rise. According to "The Employment Situation" for October 2008 released today by the U.S. Department of Labor, the unemployment rate was 6.5% in October up from 6.1% in September.  Since 1948, the unemployment rate has never risen by more than .5% in a 12 month span without entering into a recession. The unemployment rate is now up 1.7% in the last twelve months and is up 1.8% from its recent low. Nonfarm payrolls decreased by 240,000 in October, by 127,000 in August and 284,000 in September.  They also revised up the number of jobs lost in August and September significantly.  The previously reported jobs lost were 73,000 in August and 159,000 in September.  Not only did the economy lose 240,000 jobs this month, but 179,000 more jobs were lost in the previous month than was reported earlier. 

Nonfarm payrolls have declined for 10 straight months with a net loss of 1,179,000.  Last month the reported number was 760,000 jobs over 9 months.  That is a huge increase.  Over the last ten years, nonfarm payrolls have increased by an average of 107,000 jobs a month to keep up with the increasing population. Nonfarm payrolls rarely decrease outside of recession periods and it is even more rare for consecutive declines. Excluding periods right before, during and after recessions, nonfarm payrolls have declined consecutively only two times: 3 consecutive times in 1951 and 2 consecutive times in 1952. At least in regards to employment, the U.S. is in a state of recession. Some sectors, like manufacturing, are just now starting to slow down. The unemployment rate will most likely continue to rise at a fast pace in the coming months.

Sphere: Related Content

U.S. service industry contracts as consumers tighten belts

The Institute for Supply Management released their October 2008 Non-Manufacturing ISM Report on Business today. The Non-Manufacturing Index (NMI) came in at 44.425%. 50% is the breakpoint for growth in the non-manufacturing sector. Economists had expected a reading of 47%.  NMI had plunged to 44.6% in January 2008 but has been between 48%-52% ever since then.  This is the lowest level for NMI on record.  The service area is quickly deteriorating just like the manufacturing sector.

NMI is made up of four components: business activity, employment, new orders, and supplier deliveries. Business activity was at 44.2% in October down from 52.1% in September; employment was at 41.5% down from 44.2%; new orders were at 44.0% up from 50.5%; and supplier deliveries were at 48.0% down from 53.5%.

Here is what some of the respondents were saying:

"Financial services industry continues to be impacted by the global economic crisis — impacting all aspects and areas of the business and supply management." (Finance & Insurance)

"Economic slowdown starting to have an impact on customer count and check averages." (Accommodation & Food Services)

"Uncertainty is having the usual effect on business. Our response is traditional — stop all discretionary spending." (Management of Companies & Support Services)

"General pick-up in business in spite of all the bad economic global news." (Wholesale Trade)

"We are experiencing a slowdown in new job orders and existing job awards are lower. Clients are not extending project support professionals." (Professional, Scientific & Technical Services)

"Business down significantly! Discretionary spending disappearing." (Arts, Entertainment & Recreation)

Sphere: Related Content

Withheld taxes indicate personal income is taking a turn for the worse

The amount of withheld taxes received by the Department of the Treasury for a 12 month period ending October 31, 2008 was 0.65% higher than a year ago after being adjusted for inflation. This is down from September's rate of 1.43%. This is significantly lower than the rate in 2006 and 2007 where 12 month's withheld taxes grew on average by 4.5% a year.

Withheld taxes gives us a day to day glimpse of how personal income is faring well in advance of the official numbers.  So far, withheld taxes in this current downturn is resembling the slowdown during the 2001 recession. Withheld taxes is still currently growing. If the downturn continues, there could be a long ways to go before reaching the bottom. Especially if this turns out to be a stronger recession than the one in 2001.

Sphere: Related Content

Manufacturing drops dramatically as the economy contracts

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business today. The Purchasing Manager's Index (PMI) came in at 38.9% for October which is down from 43.5% in September.  This is a dramatic drop from August 2008 which was 49.9%. Economist's had expected PMI to drop to 41%.  PMI is now at the lowest level since September 1982.  A PMI reading of 38.9% suggests that the manufacturing economy and the overall economy are both contracting.  Per ISM:

"A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting...If the PMI for September (43.5 percent) is annualized, it corresponds to a 0.8 percent increase in real GDP annually...A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy."

Here is what some of the respondents to the ISM survey are saying:

• "Credit market causing suppliers to run closer on terms." (Food, Beverage & Tobacco Products)
• "Appear to be bouncing along the bottom — volume is good but pricing is tough." (Primary Metals)
• "Although the volume was down compared to last month, the volume was still higher than last year at the same time." (Chemical Products)
• "Hurricane in Houston disrupted production for 10 days at our plant." (Fabricated Metal Products)
• "Delivery issues continue across our range of purchased commodities as suppliers trim inventory commitments." (Electrical Equipment, Appliances & Components)

Manufacturing has fallen off a cliff after holding up well in this financial downturn.  Whether or not we are in a recession is no longer being debated.  Now the question is how bad will things get.  In the previous recessions, PMI has rebounded quickly but after the recession has ended.

Sphere: Related Content

Useless Dow Jones Industrial Average Trivia

Yesterday and today the Dow Jones Industrial Average had back to back gains.  The Dow had had a streak of 24 days without having back to back gains.  Before today, the last time the Dow had back to back gains was September 26, 2008 when the Dow closed at 11143.13.  Today the Dow closed at 9325.01 (16.3% lower from 9/26). 

Since October 1928, that has happened 18 times; 11 times since the Great Depression and 7 times during the Great Depression.  It happened 5 times in 1931 alone.  That is pretty dismal considering it could only happen 11 times within one year.  The record is 52 days without back to back gains set in 1931.  The last time it happened before this string was in 1995 and then 1984 before that.

Sphere: Related Content

GDP falls by 0.3%; consumer spending drops by 3.2%

The Bureau of Economic Analysis released the advance Gross Domestic Product figures for the third quarter today. Real GDP, adjusted for inflation, fell by an annualized rate of 0.25% in the third quarter 2008 compared to the second quarter 2008. This is better than expected. Economists had expected a 0.50% drop. The second quarter grew by a revised 2.80%. This is the second time in a year that Real GDP has been negative (fourth quarter 2007 declined by 0.17%). Adjusted for both inflation and population, real per capita GDP fell at an annualized rate of 1.19% in the fourth quarter 2007. It barely rose by 0.02% in the first quarter 2008, rose by 1.92% in the second quarter, and fell by 1.28% in the third quarter.

So far the current possible recession has been very mild. However, looking at the numbers behind the GDP reveals a harsher picture. Consumer spending in the third quarter fell sharply by an annualized rate of 3.17%. This is the first drop in personal consumption expenditures (PCE) since the recession of 1990-1991. Real GDP dropped by only $7.4 billion from the third quarter to the second quarter. PCE dropped by $66.1 billion. This was offset by a net increase in exports of $31.1 billion. Helped by the weak dollar, exports rose by $22.3 billion. Recently the dollar has strengthened and the global economies have weakened. Also contributing was a new record for spending on national defense of $550.6 billion in the third quarter. This was an increase of $22.5 billion over the second quarter. In percentage terms of GDP spending on national defense is at the highest level since 1993.

Sphere: Related Content

S&P Case-Shiller home price index continues to slide

The S&P Case-Shiller home price index for August 2008 was released today by Standard and Poors. The composite-10 declined 1.10% from July 2008 and declined by 16.97% from August 2007. The composite-10 is now down 21.96% from its peak. All 20 individual markets are still down year over year with Las Vegas and Phoenix down the most at -29.49% and -29.45% respectively. Charlotte and Dallas are down the least year over year at -2.24% and -2.00% respectively. 2 markets were up in August compared to the previous month (Boston and Cleveland). The markets with the biggest declines from the peak are also declining the fastest; and some of the markets that declined the least are starting to rise. 8 markets have now dropped over 25% from their peak.

You can click on the images for a larger view.

The CME futures market is pricing in a further drop of -10.08% by next August for the composite-10. The home price index is not seasonally adjusted. In the last 20 years, home prices have averaged appreciation of 5.29% a year. March through August are typically the strongest months for appreciation and home prices have on average appreciated by 4.40% during that 6 month period. September through February are the weakest months; home prices have on average appreciated by only 0.89% during that 6 month period. In 2007, the declines were moderate in the first half of the year and started rapidly declining in August. The composite-10 did not record a 1% loss month over month until October 2007.  Right now we are declining at a faster pace than we did last year at this time.  And this was before the credit crisis intensified in September and October.  The month to month change in the composite-10 bottomed in February when it declined by 2.80% in one month and peaked in June with a 0.61% decline over the previous month. S&P Case-Shiller index uses a three month average. The existing homes report issued by the National Association of Realtors gives a glimpse of how home prices are doing (although it uses median prices instead of the more accurate method of paired sales that is utilized by S&P Case-Shiller).  Prices peaked in June 2008 and dropped by 2.2% month over month in July, by 3.4% in August, and by 5.7% in September. The CME futures market is pricing in that housing will bottom at 150 in November 2010. This is a 15.1% further drop from August 2008's mark of 176.6. The CME futures are pricing in that the home price index will recover to 160 by September 2012.

Sphere: Related Content