The Big News from the Retail Sales Report

[ProSense]

The Big News from the Retail Sales Report

Posted by Austan Goolsbee on November 16, 2009

The big news from the retail sales report was that sales rose again and even more than expected--1.4%, which was a full half point more than the consensus forecast.

The core retail spending--the stuff that tends to give a steadier picture and not fluctuate around a lot--rose for the third straight month. And if you compared the core sales in October 2009 to October last year, it was the first year-over-year increase in 8 months. In fact, the three-month gain ending in October was the strongest since June 2008.

This string of gains means that consumer spending is on track to post another gain in the fourth quarter of the year. From mid 2007 to mid 2009, we had measly growth or outright declines in consumer spending so this is a welcome sign of the beginnings of recovery.

One last thing worth noting in this retail sales report is the fact that consumer spending on motor vehicles posted a big increase. The report last month showed a decline in sales as the Cash-for-Clunkers program ended. Some critics argued that the perceived recovery of the economy was only a temporary blip due to people shifting their car purchases forward and sales now would be lower for an extended period. These data suggest that didn't happen. They confirm what the private industry sales data already documented. The sales of motor vehicles in October are up to an annual rate that actually exceeds the rate in the eight months before cash-for-clunkers began.

The President's focus is on recovery and getting people back to work. Turning the economy around is the necessary first step for job creation. This report suggests the recovery effort may be picking up steam.

[AllentownJake]

1. Yeah and there was also this

http://www.businessinsider.com/ny-fed-the-recovery-sputtered-in-october-2009-11

[ProSense]

3. That really doesn't negate the point in the OP. Also

sputter isn't negative.

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in November, but at a somewhat slower pace than in October. The general business conditions index fell 11 points, to 23.5. The indexes for new orders and shipments posted similar declines. Pricing pressures eased, with the prices paid index positive but lower than last month and the prices received index rising to a level just below zero. Employment indexes fell from October’s elevated levels, remaining slightly positive. Future indexes conveyed an expectation that activity and employment would improve in the months ahead and that both input and selling prices would increase significantly.

Pulling out the inconsistencies doesn't mean there aren't positive signs.

From the horses mouth, Bernanke:

The Outlook for the Economy and Policy

I return now to the outlook for the economy and policy. As I noted, I expect moderate economic growth to continue next year. Final demand shows signs of strengthening, supported by the broad improvement in financial conditions. Additionally, the beneficial influence of the inventory cycle on production should continue for somewhat longer. Housing faces important problems, including continuing high foreclosure rates, but residential investment should become a small positive for growth next year rather than a significant drag, as has been the case for the past several years. Prospects for nonresidential construction are poor, however, given weak fundamentals and tight financing conditions.

[AllentownJake]

4. The Fed will present facts but you have to get through their double speak

The key in that article, because you know nothing about business or economics was the cash holding positions. Now re-read it and tell me what you think the consequences of that paragraph is.

[ProSense]

5. "As I noted, I expect moderate economic growth to continue next year. "

I know what that means.

[AllentownJake]

6. Fed double speak

Re-Read the cash survey position. Prove to me you have intelligence.

[Clio the Leo]

24. Hate to tell you this Jake.....

... but whatever point you're trying to make is getting lost because of the personal insults.

You're a good guy. You're better than that. ;)

[AllentownJake]

25. I should be nicer to Pro

but it is really really hard.

[Clio the Leo]

26. No, it's supereasy........

..... she's a good Democrat. You're a good Democrat. Any good Democrat deserves respect.*

Reading/engaging in a good old fashioned policy debate is fun. I try to save the insults for the Freepers though. :)



**Does not apply to any Blue Dog member of Congress who has yet to agree to vote for HCR, see a separate thread I'll start later detailing my plans to burn them in effigy. (har har)

[mkultra]

28. i read it and its clearly positive

If your trying to suggest that increased cash holdings and decreased debt are bad signs then i would say that it is you who has again become easily confused. I know you will make the simplistic point that not spending hurts the economy and shows a lack of confidence.
But you will be mis-interpreting the data.

When companies during a recession experience a better than expected increase in cash holdings and a reduction in debt, it shows that business is picking up. At some point, those increased reserves will result in investment which will equal jobs. Companies don't spend during a recession until they feel confident that the bottom has been hit. Increases in cash reserves are one to build confidence that the bottom is past.

You essentially made his point for him. Nice work.

[AllentownJake]

31. That may be the next step

but if in 2010 they are still holding cash, unemployment remedies aren't coming in 2010. Therefore Businesses don't buy the recession is over argument that is being sold to them yet.

This isn't a better than expected. The survey says they have more cash on hand, and they plan to have more cash on hand in 2010. How they got to that position could be a numerous number of factors but the best logical assumption is that those numbers were reached in cost cutting, the biggest cost cutting occurring in payroll because it is the easiest way to cut cost and have an immediate short term gain.

If they are planning on increasing their cash position in 2010 that means they are not planning on doing extensive hiring, because that is where the building cash is happening and that will not happen to the demand curve absolutely requires it to.

:-)

[AllentownJake]

7. I'll spell it out for you

Businesses are holding onto more cash and expect to in 2010. They also plan to take less credit.

The goal of a Treasury department of a corporation is to hold onto as little cash as possible because cash provides a poor return on investment (negative due to inflation). If businesses are planning to hold more cash that means they plan to due less investing activities (i.e. building, hiring, increasing inventory and production). If they plan to take less credit it means they plan to do less expansion.

So if you have any understanding of the business world, when you read a survey like that, you read that business is bearish on an economic recovery.

[ProSense]

8. "Businesses are holding onto more cash and expect to in 2010. They also plan to take less credit."

Do you just go about making up stuff?

Other factors will affect near-term employment growth as well. Business confidence in the durability of the expansion, for example, will help determine employers' willingness to hire. The current prevalence of part-time work and short workweeks may slow job creation early in the recovery period, as employers may prefer to convert workers from part-time to full-time status and to add overtime work before turning to new hires. In addition, difficulties in obtaining credit could hinder the expansion of small and medium-sized businesses and prevent the formation of new businesses. Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth. Overall, a number of factors suggest that employment gains may be modest during the early stages of the expansion.

Everyone is trying to get the banks to make more loans, expand credit. Business are not turning down credit.

[AllentownJake]

9. This is what I'm talking about

In a series of supplementary questions (see Supplemental Reports tab), respondents were asked about their cash holdings and debt financing. More than 40 percent of manufacturers expected cash holdings to increase over the next year, while 24 percent expected them to decline—in sharp contrast to results from an identical survey conducted a year ago, when more manufacturers had expected cash holdings to decline than to rise. Respondents were also asked about expected changes in their outstanding debt; in the current survey, 39 percent of manufacturers said that they anticipated declines, while just 16 percent expected increases—again, a noteworthy change from last year’s survey, when nearly as many respondents had anticipated increases as decreases in debt. In response to a related question on current cash holdings, 34 percent of firms said that they were currently holding higher than usual (excess) cash balances, up from 20 percent in the November 2008 survey.

You are looking at something entirely different.

Typical Prosense fail

[ProSense]

12. How did you get business plan to take less credit from this

Respondents were also asked about expected changes in their outstanding debt; in the current survey, 39 percent of manufacturers said that they anticipated declines, while just 16 percent expected increases—again, a noteworthy change from last year’s survey when nearly as many respondents had anticipated increases as decreases in debt.

This could simply mean that they don't aniticipate having access to credit since bank lending is still off.

[AllentownJake]

14. They aren't going to be getting it either

unless it comes from the Federal Government.

[ProSense]

16. "unless it comes from the Federal Government."

Wait, what happened to your point that they don't want it?

[AllentownJake]

17. I'm reading the cash hoarding as them not wanting it

which is probably true if the interest rates are wrong...of course if the federal government steps in and offers low interest guarenteed loans...people will always take that.

[ProSense]

19. "which is probably true if the interest rates are wrong"

That means your argument is based on pure speculation.

[AllentownJake]

20. Common sense

You can always get a loan...doesn't mean you will like the interest rate being offered. Everything is about risk, if you are willing to take a higher interest rate and you are a profitable business than someone will take the risk and lend to you.

Again I point to the cash example, if people are holding onto cash, that means the rate of return they expect for investing the money is lower than the rate of return they will from letting it sit in a money market or bank account and they will take the risk with inflation.

[ProSense]

21. Common sense?

How do you know what the rates are going to be? Yeah, if someone offers me a high interest loan, I'd turn it down, but you are guessing about rates.

[AllentownJake]

22. What do you think banks are doing with their money?

Part of this is re-capitalization, the other part is they expect less risk overseas. Check out what Goldman is up to these days.

For the smaller boys, they are pretty much getting fucked by increased deliquencies in their bad commercial loans, which they bundled as CMBS, which means they were rated at 20% for capital ratio purposes...translation, as they go bad they make a bigger boom than a house does which is rated at 50%.

[AllentownJake]

10. and if that is your argument you even know less about what is going on

In the commercial real estate default market, which is mostly taking out community and regional banks, the same banks small businesses rely on for expansion.

:rofl:

[AllentownJake]

11. I now expect you to break out the TARP SBA loans

when the losses are projected to be double the amount that TARP can pump in

:rofl:

[ProSense]

15. Not sure why you're laughing when what you said doesn't make sense

One of the criticism being leveled at the Obama administration is that the efforts haven't stimulated bank lending. You think people are encouraging lending because businesses don't plan to borrow? Confidence improves when the situation improves, and borrowing will pick up when lending returns.

[AllentownJake]

18. Not really

unless the interest rate is obscenely low, businesses generally won't take on debt unless they are sure the investing activity will be higher rate of return than the interest on the debt they are paying.

Now if there are low interest loans out there with federal guarantees, that will encourage lending because the rate of return doesn't need to be that high to justify the loan.

Cash hoarding is going on, which makes the assumption that the presumed rate of return is quite low (i.e. they are willing to risk low interest returns in a money market account or business bank account).

You offer a low enough interest rate, people will start to bite....banks will lend with guarantees, but you risk bubbles in that circumstance.

[Yavin4]

23. Bottom Line, Things Are Slowly Returning To Normal

Compared to last year at this time, everyone was expecting a complete economic meltdown. Today, businesses are hesitantly returning to normal.

[mkultra]

29. your assumption abou corporate "Treasury departments" is incorrect

its that simple.

[AllentownJake]

30. Really

because every Treasury department I've worked with over 7 years has tried to maintain the least amount of cash they possibly could to provide liquidity for the business and at the same time provide investment money for expansion or investing.

The goal is to get the most you can out of the cash you have on hand. If you are holding onto more cash, you aren't investing it and you must be doing that for a reason.

[Nikki Stone1]

35. It sounds like the White House link in the OP put the best spin possible on a drab situation

And Pro Sense needs to put the actual link, untitled, into her OP so everyone can know where it is coming from immediately, without having to link. As soon as I found out her "good news" came from the White House, I realized it was spin. Nothing wrong with spin--politics relies on it. But money decisions need to be based on something more solid.

[mkultra]

38. unless its a recession

in which case you elevate the concept that cash is lifeblood since credit is not available. IN these cases, you store cash until its safe.

[Teaser]

32. .

.

[Name removed]

2. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Cha]

13. Well, I like

your news, Pro Sense.

[PBS Poll-435]

27. DU:GDP where good news goes to kick the shit kicked out of it and left to die

:crazy:

[DU GrovelBot]

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[Garam_Masala]

34. Then there is this article on "recovery"?

http://www.2000wave.com/gateway.asp

[Nikki Stone1]

36. Unrec. Hiding the whitehouse.gov link doesn't make the article any less spin

But it does make me doubt your honesty.

[ProSense]

37. Clue: "Austan Goolsbee"

It's surprising that you were able to find the WH link in the OP.