Out of Touch with Reality

According to many of the "experts," today's data on retail sales was unequivocally good news:

"This is a pleasant surprise, especially in the light of the severe winter weather across large parts of the country last month," said Ian Shepherdson, an analyst at High Frequency Economics....

"Consumers are beginning to come out of their shells," IHS Global Insight analyst Nigel Gault said. "Today's data suggests that real consumer spending will rise about 3% in the first quarter, the fastest increase in three years." ("Shoppers Buck Snowstorm to Push Retail Sales Higher," Wall Street Journal)

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"This is consistent with the trend we've been seeing," said [Accenture's Chris] Donnelly. "We've seen a gradual thaw in the consumer pocketbook, and there is pent up demand -- we are certainly in a more optimistic place in February 2010 than in February 2009." ("Retail Sales Beat Expectations," CNNMoney)

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"While we are not expecting the consumer to come roaring back in the near-term, improvements have been quicker than expected considering the still-distressed state of the labor market," wrote Adam York, an economist for Wells Fargo Securities....

After the report, Macroeconomic Advisers raised its forecast for first-quarter gross domestic product to 3.1% from 2.7% earlier. Economists for Bank of America's Merrill Lynch raised their forecast to 2% from 1.5%. ("Retail Sales Shake Off the Snows of February," MarketWatch)

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"This is more than a one-month wonder," said Stuart Hoffman, chief economist at PNC Financial in Pittsburgh. "This is telling us that consumers, who had been tightening their belts throughout the recession, have now loosened them a notch."...

"We needed the consumer to step up because that is the biggest part of the economy," said Sal Guatieri, an economist at BMO Capital Markets. "This retail sales report should go a long way toward alleviating fears that we might slip back into a recession." ("Retail Sales Show Surprising Gain in February," Associated Press)

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“February could be the direct result of cabin fever, with consumers eager to get some fresh air and enjoy a day of shopping,” NRF Chief Economist Rosalind Wells said in a release. “We expect sales increases to continue, but high unemployment and other economic factors will restrain consumers’ ability to splurge on discretionary items.” ("Retail Sales Improve in February," Kansas City Business Journal)

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"February sales were surprisingly good" considering the snowstorms that blasted across the Northeast and the Mid-Atlantic region, says Richard Jaffe, a managing director at Stifel Nicolaus & Co. "I think things are improving, but I don't think we're out of the woods."...

Michael Niemira, chief economist at the International Council of Shopping Centers, is more bullish. He sees the February sales numbers as the beginning of a cyclical recovery. "I think the picture is overwhelmingly one of a retail recovery," he says. While he acknowledges that the sales increase is off weak 2009 numbers, he's nevertheless optimistic. "A broad retail recovery is in play," he contends. "There is a fair amount of pent-up demand ... and we're only seeing the beginning of that." ("A Hopeful Economic Sign: February Retail Sales Jump," Time)

However, if they had dug even a tiny bit deeper and tried to understand the factors that contributed to the increase, as the authors of the following Free Exchange post, "Good News No Match for Bad News," have done, they might not have looked so out of touch with reality:

THE news organisations are trumpeting new retail sales data out of America. Here's breathless Bloomberg on heroic American shoppers:

Sales at U.S. retailers unexpectedly climbed in February as shoppers braved blizzards to get to the malls, signaling consumers will contribute more to economic growth.

Kind of makes your eyes well up a little, doesn't it? But of course, every silver lining has a cloud, and this one seems to have a rather dark and foreboding cumulonimbus. February retail sales were up, but only because January's sales were revised down by about $1.5 billion. Absent the revision, the February numbers would have constituted a decline. Meanwhile, over half of the year-over-year increase in retail sales in February is attributable to purchases of petrol; recall, again, that oil prices have essentially doubled from this time last year. And then there's this:

In gauging the economic recovery's trajectory, you shouldn't forget that this is not a normal tax season.

People who don't pay income tax are getting an extra $30 billion in refundable tax credits thanks to the Recovery Act, the Joint Committee on Taxation has estimated. Based on the timing of tax refunds in past years, well over half of that has likely been paid out already.

Mark Zandi, chief economist at Moody's Economy.com, said the extra serving of tax-season cash to modest-income families "helps explain the somewhat surprising strength in retail" in February...

And

Excluding AMT relief, Zandi figures peak stimulus hits this month or next.

This was a stimulus, remember, that was well short of Christina Romer's $1.2 trillion recommendation, which was itself computed based on data that underestimated job losses by about 1 million.

If that's not enough of a dark cloud for you, then there's also the fact that consumer confidence fell in March, for the second consecutive monthly decline. Recovery looks more uncertain by the day.

Comments

[roger]

Shoppers Buck Snowstorm to push retail sales up:
reminiscence of The Charge of the Light Brigade at Balaklava

[Mark G.]

People who don't pay income tax are getting an extra $30 billion in refundable tax credits thanks to the Recovery Act, the Joint Committee on Taxation has estimated. Based on the timing of tax refunds in past years, well over half of that has likely been paid out already.

Mark Zandi, chief economist at Moody's Economy.com, said the extra serving of tax-season cash to modest-income families "helps explain the somewhat surprising strength in retail" in February...
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Bingo! I have a friend, an urban youth, works retail. She told me 2 weeks ago the young people, lower income workers, were coming in droves to buy clothes. I was surprised, asked her if the economy was getting better, she told me no, people were cashing/spending their tax refund checks.

[Margarita]

People had to buy snow shovels and ice melt.

[ruralcounsel]

As a consumer, I've started making a rash of purchases (mostly on line) for purposes of future conservation and proscription of purchasing...things for the family garden (on which I expect to depend on this year to reduce grocery bills), increasing the number of livestock I carry, a few critical pieces of clothing to replace some things that were worn past their useful life, necessary items to keep my farm equipment productive another year (baling twine, sickle teeth, filters, repair parts, oil, fuel, welding rods), and items which can charitably be described as survivalist in nature. This isn't a return to the past spending habits, it's merely due to a long buildup of demand. It's tightly targeted to certain items. And it's in anticipation of times getting so bad that some of these items will be hard to get. If you think a storm is coming, stock up! A grocery store is only 5 truck-less days away from empty shelves, and we're all only 4 meals away from anarchy.

I'm debating whether to try and capture any investment gains now after the recent "market recovery", before it recognizes what we're seeing here is a false dawn. And toying with getting out of the markets all together. I have friends who are independent building contractors, who tell me that roughly 50% of carpenters in Vermont are out of work. That farmers are patrolling their herds with loaded weapons in the vehicle, because of the threat of poaching.

I'm doing everything I can to prepare for worse times ahead, because that's what I think is coming. I'll earn as little as I can, spend as little as I can, and reduce my taxes to as low as I can legally get them. Atlas is shrugging. Time to shut the $ spigot off to the government.