Two glum financial reports today blunted the recent momentum of positive financial news, but do those reports signal that optimism about the economy is premature?
We asked UNC Charlotte economist Carol Swartz to sift today's data. Her conclusion: "The news on retail sales and inventories was gloomier than expected, but not dramatically so," she says.
She also found a hint of good news.
First, the reports:
The Commerce Department said today that retail sales dipped 1.1 percent in March, the largest decline in three months and a much weaker showing than the 0.3 percent increase that analysts expected.
Commerce also reported that business inventories dropped 1.3 percent in February, matching the January decline and close to the 1.2 percent fall that economists had expected. The sixth straight decline is the longest stretch since stockpiles fell for 15 straight months ending in April 2002, a period that covered the country's last recession.
Although the retail sales figures came in lower than economists anticipated, the numbers weren't stunning to Swartz.
"Retail sales declined in areas households can defer, such as automobiles, clothing, appliances, and furniture, suggesting consumer confidence has not yet rebounded," she says. "The continued decline in automobile sales is the result of continuing tight credit for consumers and the quite public problems at GM and Chrysler."
She similarly cautioned not to read too much into the inventory data, which she called a "lagging indicator" of economic recovery. "This data does not show sustained improvement until the recovery is well underway," she said.
What numbers interest her? Here's one: average total business inventory to sales numbers, which declined in February.
She explains:
"In the early stages of a recession, inventory-to-sales ratios increase because it takes time to identify the recession and adjust orders and inventory accordingly."
For 2005 – 2008, average total business inventory to sales were in the range of 1.27 to 1.31. In June 2008, the inventory-to-sales measure was 1.25 and it has increased steadily since then.
"The decline in February is a hint of good news," says Swartz, "but only a hint."
For now, hints might be all we get.
"The picture suggests that the economy is continuing to test whether additional contraction will be forthcoming or whether we are building strength for the recovery," Swartz says. "The general consensus is that the economy will begin its upturn in the second half of this year, so look for more mixed signals as additional first quarter data become available."
Tuesday, April 14, 2009
Today's gloomy news - not as gloomy as it seems?
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10 comments:
And when a person jumps off a building, they eventually stop going down any farther.
It doesn't mean that person is healthy.
Go look at Japan- their economy collapsed in 1989 and hasn't recovered since. that's nearly 20 years. And they actually manufacture stuff the world wants to buy!
The only thing the USA manufactures for export are credit default swaps, toxic mortgages, and hollywood movies.
Yea and a guy jumped off a skyscraper and fell 50 stories and survived.
But it was 51 stories tall so they scraped him off the sidewalk like a burrito.
Anonymous, please take your half-empty glass of water attitude and dump it on your head. Thank you.
Actually the most important thing about the retail sale data is what that likely means for local sales tax revenue.
Neither the city or the county have remotely adjusted spending to adjust to the new realities.
Here's are two vignettes, I offer as the canary in the mineshaft. The economy is not hydraulic-(liquid- where instant pressure out equals pressure in), it is instead Pneudralic (air- it has to be given time to compress before the pressure can be felt going out).
1) carpet cleaning - is now up. The last thing people will spend money on in hard times is getting their carpet cleaned.
2) Myrtle Beach - You can't move in Myrtle Beach due to the traffic. For the first time in a year, tourist are flocking to the sea to enjoy the good times once again.
My conclusion is that the economy has taken a drastic upward swing during the last week. Time will tell if I'm right or wrong.
How do you like this new change?
People are learning the real **Truth...That is scaring the Heck out of the `Liberals...
The year-over-year decline in retail sales comes in part from the decline in energy prices. Most of us are spending about half what we did on gasoline, and heating costs are down some. A lot of folks think that is a good thing, and not a sign of the apocalypse.
If we're to try to fathom anything from these numbers (which will probably all change when the usual revisions come out), we need to ask questions like "Compared to what?" and "Is this a leading or a lagging indicator?"
Also, we are not Japan, and much of our response to the current crisis has been the opposite of what they did after 1989.
Nobody knows the future, but as the guy who jumped off the skyscraper said as he passed the 20th floor, "So far, so good."
Why do so many posts on the squeeze blog focus on when the recovery will happen? Why the laser-like focus on any scrap of data that remotely points to an upswing? It seems half the posts take one or two small nuggets of data then makes predictions (or ask economists to make predictions) when this will be over.
The earlier posts were worth reading - stories of families making adjustments to make ends meet, some stories of hope and some of the reality of the pain we are in. The focus seems to have shifted to the possible upswing - almost like the Squeeze wants desparately to be able to say they predicted correctly when things turned for the better.
If I want bad predictions I'll go to a tarot card reader, not an economist. Journalists (& blaggers) do lousy writing when they take a nugget of ecnomic data, add a quote from an economist, make a prediction about where we are at, them ask what we think. Thats not a formula for good writing and hopefully the squeeze and the Observer can do better.
Anon, 6:46: Thanks for your thoughts. While we'd never presume to predict when a recovery might arrive, we think it's valuable to give our readers information that looks beyond the reports that are in the news. That's why Carol Swartz is a terrific resource for the Squeeze. She explains, with insight.
Peter
"we think it's valuable to give our readers information that looks beyond the reports that are in the news"You left out the rest, Pete:
"...particularly when that news is bad for the left and The One."Funny how we don't remember anyone putting "looking beyond the reports" when Bush 43 was in office. Even (especially) when "looking beyond the reports" got you to the truth.
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