Chillin' out till it needs to be funded
From Pioneers’ Thanksgiving to a second Black Friday in mid Summer July is what expresses this country more than anything else. Almost 20% unemployment in the Economy may be worrisome esp as the Debt ceiling fracas and the downgrade forced many a people to pull down early curtains on America’s recovery. (With the latest comScore confirming a 14% growth in sales in Q2 in eCommerce, Retail sales in Q2 will remain high despite the slow quarter signals earlier)
The show must go on and after every overdone bite of misery there is a sunny interlude. The Dow futures today a brighter 300 points up after the street shut down in an abysmal reaction to the weekend of politicking, ending in a downgrade for America inc. The consequent reduction in GDP targets are not totally to be blamed on the excess of debt and the downgrade. America’s citizens have given other signs too. In an otherwise upbeat month for Auto sales, large car sales were down 20% after an abysmal June washed away hopes for America even though its top two carmakers snagged a 50% share of the market on a 12 million cars annual rate
July Car and light truck sales grew almost 10% led by an unlikely 20% rise in SUV sales to 100,000 units for July. Apart from Large and Small SUVs ( see WSJ Market Data) there were also a good 150k Pick up trucks and 240000 Crossovers just in July. Almost a million pick ups have been sold in the 7 months of 2011 yet. But small and medium cars are up too in these 7 months at 17% and 10% each Also of interest is rise in the small car brands VW and Hyundai up more than 50% year on year
Whether a F series pick up or the Silverado, America definitely remains outdoorsy and the otherwise migration to smaller towns outside New York and Chicago seems to be the one which will move out in
favour of congested urban clusters in New York and now the rapidly rising Los Angeles. The recovery in Los Angeles county is of particular interest too.
Anyway, apart from Auto sales, store sales have already started dropping in the remaining weeks of August and September as the new public data precipitates a loop within the loop and the falling out is something everyone is on the watch for. Gasoline prices being below $4 helps, and even as bnaks march to the guillotine, locals like Capital One gladden the spirit of America with the purchase of HSBC Cards almost a done deal after the purchase of the Orange bank last month
Apart from the followers of the ISM manufacturing survey, the result of the Services survey was the only really unexpected dampener, that worried all of America truly in terms of the near blanking of orders for july and August. the inflation figures at CPI for June fell 0.2% and the gasoline index even fell 7% year o n year the annual CPI for June still a hefty 3.6%. With the yields dunning down, likely July and August inflation will be falling away a t the retail end though sharply into recession territory from the looks of recession hawks ( much like inflation and policy hawks, though only now recognised as having the least required vote to have a presence at the feast)
The June nos were mostly driven by an Energy index increase of 20% with even food below 3.5% Non food and energy items continue providing a healthy momentum to the economy and lend hope esp if credit conditions improve despite the mortgage settlements that seem to be getting heavier in cash outgo every other day. Retail Sales data from offline stores showed large yoy jumps running into July too with (see WSJ Market data tables here) Saks, Neiman Marcus, Hot Topic and Ross growing 8-15% in sale store comparisons. Even at Nordstrom full line stores grew 7% as Costco grew 15% on gasoline, both growin gjust over 3% in discount racks in the US. Targte reported $4.84 bln in sales for the month. Kohl’s raised its earning outlook for the year.
Even though revolving credit is less than $800 bln outstanding till June, incl the other retail credit consumer Credit is a gross $2.5 tln
in the economy yet and given unemployment could be an important parameter till the pending payroll cut extensions and or social security and unemployment payment increases give hope to Democrat America Revolving credit, mostly held by banks was till last month ready to be grown as a business , JP Morgan looking at a portfolio of $120 bln Card outstandings.
This is by no means a complete analysis
The first quarter retail and eCommerce sales had grown by 8.5% and 17.5% on an adjusted basis year on year but the second quarters dropping consumer sentiment surveys ( UMich) at 71% and 63% for Jun and July show a very different picture emerging for the data to be reported this month. the July beige book report also acknowledge a slowdown in six out of 12 districts on the Atlantic Seaboard and the later progress in July may all be negated by sentiment crossing into the red for most purchasing and producing activity.
Ordinarily a channel for growth would have been provided by growth in Services continuing in the period but the same would build on any new order book improvements in this month as the previous numbers report that all the three NY, Phils and Chicago Fed will report negative growth in industrial activity this month though Phils and Kansas had reported a strong increase in retail sales till June . Consumer spending thus , is really our only hope immediately followed by positive surprises in the Housing and Jobs indicators which are not expected to go for any improvement in pre release consensus week on week.
NO QE3 please
I doubt if the calls for QE3 will subside any soon but there is nothing fundamentally wrong with the Economy as long as governments can function and the few state and muni defaults are what would happen in any other part of the country. America has to bring its debt bill down over this decade and a QE3 will only confuse the otherwise immobile $1.5 tln in the FEd banking system lying unused with only $2.5 tln consumer debt in circulation.