The sense of despair in the mainstream business media was psychotic after the retail sales report for June. A sample of the headlines:
CNBC: Markets Jarred by Surprisingly Weak Retail Sales
Bloomberg Business: Retail Sales in U.S. Unexpectedly Fall on Broad-based Drop
MarketWatch: Retail Sales Shock Wall Street, Slide For First Time in Four Months
What a reversal from May, when retail sales were cited as the definitive sign that the economic slump had passed and that the conventional view of the jobs market was finally, if surprisingly belatedly, taking shape.
It didn’t matter to economists that seasonal adjustments provided the only statistical basis for the apparent jump in spending. I wrote then:
“There is a lot about this ‘cycle’ which is totally upside down, but retail sales in May just might represent the apex of the Orwellian transformation; all on the say-so of seasonal adjustments. The worst data in years, comparable only to the worst economic experiences in recent history, are now counted as a “surge” in spending and cause for both optimism and doom.”
The mainstream media were far more upbeat, as demonstrated on CNBC.com:
“U.S. retail sales surged in May as households boosted purchases of automobiles and a range of other goods even as they paid a bit more for gasoline, the latest sign economic growth is finally gathering steam.”
What Seasonality Gives, Seasonality Takes Away
The nature of seasonal adjustments is that what they give in one month must be undone the next, as “surges” aren’t really surges but statistical variation only.
The decline in the month-over-month retail sales for June thus completes the trip, and the despair in the mainstream media is palpable.
Most of the articles themselves are far more melancholy than has been typical of the repeated and incessant “unexpected” results. As I noted about same-store sales, which almost perfectly pegged this retail sales report, the narrative has decidedly shifted as “transitory” and “lower oil prices” and even the dominant view of jobs has now almost disappeared.
There is something greater going on here and even the orthodox economic world is starting to appreciate that, if it is yet unready to fully comprehend what that might mean.
Not all absurdity has disappeared, however, as there is now a new flock of excuses. Where weather and some remote port strike were “to blame” for the first part of 2015, June is apparently undone by Memorial Day and, get this, the later end to the school year. As Bloomberg reported:
"An early Memorial Day holiday that may have boosted sales in May at the expense of last month, and a longer school year caused by the harsh winter probably contributed to the more subdued sales performance for the quarter. Stronger gains in incomes will probably be needed to give consumer spending, which accounts for almost 70 percent of the economy, a bigger lift heading into the second half of the year."
We’ve been reading about the “greatest jobs market in decades” for more than a year now, and yet “stronger gains in incomes will probably be needed”?
It is reasonable, given the actual spending and even income data, to assert that the U.S. economy might, at this moment, already be in mild recession. It is at least uncontroversial now that economists might begin to actually contemplate that this is a real possibility.
Retail sales excluding autos have now been nearly flat for all of 2015; excluding food and autos negative or zero for the full year so far. The drop in retail sales (with food, excluding autos) is at least as severe as the whole of the dot-com recession already (“inflation” or not).
Sales Gains Barely Above Recession Levels
As I have chronicled throughout this year, all six months of 2015 for retail sales are in the lowest echelon of the entire series going back to inception in 1992. The only months worse than now are the collapse portion of the Great Recession and its immediate aftermath, an uncompromising list that suggests far more than trivial recessionary probabilities.
The fact that this decay has lasted six months (and really eight going back to the first interruptions during the holiday shopping period) can no longer be interpreted as a minor and temporary “slump.”
I have little interest in the semantics of the word “recession,” but it is not, contrary to popular opinion, two consecutive quarters of declining gross domestic product. A recession is essentially a serious and sustained deviation from the potential growth path, as opposed to the mistaken Phillips Curve projections that pass for the concept.
That definition would actually count for almost all our economic experience since the 2012 slowdown, but it has taken new emphasis just this year in direct violation of the payroll interpretation.
Any economic anomalies so far since that slowdown are not the “winters” and “unexpected” weakness but rather anything to the higher side — the repeated and almost permanent use of “unexpected” as an apology these past three years demonstrates that fact quite well.
Where 2014 might have been a “slump,” and thus a grave warning, 2015 is so far, to my view, mildly recessionary.
That distinction, owing in great part to the time factor, is actually more ominous than it sounds. Lingering dissociation with good economic behavior is itself a problem, but so far we have yet to see and experience the usual recessionary forces act upon other economic areas.
Those include a severe inventory correction and other massive cost-cutting moves on the part of businesses, leading up to a sharp revisit of negative employment (we may have already and actually experienced a minor dip in employment already, though hidden among the trend-cycle bias of the payroll reports). In short, we may have a mild recession already without yet close to the full extent of a recessionary downswing.
I have attributed that to attrition, the protracted and unsatisfied weakness of what really appears to have been an extended and elongated “peak” cycle. In that view, what becomes more relevant is not groping for somehow the removal of that attrition, trying to further and further excuse the immediate weakness, but rather to begin searching the spectrum of possibilities about the length and ultimately the depth of this process.
The fact that consumers, especially, had not experienced much if any recovery since the Great Recession more than five years ago increased the likelihood of more drastic downside. Consumers have been whacked by no recovery, and now by what may be a mild recession. And all before the nasty stuff actually starts.
The bizarre and increasingly detached excuses from economists and the mainstream media (redundant) is simply that they cannot yet fathom that possibility, but they are starting to as a matter of real economic intrusion into the dominant statistical mirage or fantasy.
Six months of atrocious, recessionary consumerism should do that.
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