Posted by: Michael Mandel on July 03
This morning's employment reports show a pervasive and broad weakness in the labor market. And frankly, I think the situation is actually considerably worse than the numbers show.
Let's take a closer look. Construction, manufacturing, retail, wholesale, transportation, information, financial activities, and temporary help services are all down in June. The industries which appear to be adding workers are natural resources, utilities, professional and technical services, education and healthcare, and leisure and hospitality.
BUT!! I just don't believe the apparent gains for professional and technical services, and for leisure and hospitality. In the professional category, the BLS data seems to be showing that architectural and engineering firms are adding workers. No, no, no--that can't be true.
And the household survey shows that the unemployment rate in the leisure and hospitality industry--which primarily includes restaurants, hotels, and casinos--has jumped from 7.2% a year ago to 8.9% today. 8.9%!! That's not the sign of an industry which is adding workers.
It may be time to take a look at the role that illegal immigrants are playing in this recession. I suspect that they are getting whacked hard, but not showing up in job numbers.
Taken all together, I am convinced that we are well into an official recession, once all the revisions are done.
Posted by: Michael Mandel on July 01
This is the chart I was doing when I found the mistake in the previous post. It shows the share of retail sales growth coming from e-commerce (leaving out gasoline station and fuel oil dealers). Until recently, e-commerce accounted for a relatively small share of retail sales growth. In the first quarter, however, e-commerce was 36% of growth
Posted by: Michael Mandel on June 30
Well...I didn't expect such an, um, overwhelming response to my previous post.
I will get to everyone's comments. But first let me respond to the people who worried that e-commerce was too small to make a difference.
In fact, over the past year e-commerce accounted for 36% (corrected!!) of the increase in retail sales, outside of gasoline stations and fuel oil dealers.
Explanation of the correction: The original version of this post said that 91% of the increase came from e-commerce. That number was based on the seasonally adjusted retail trade figures. The new number is based on the seasonally unadjusted figures. Usually year over year changes should be roughly the same for both adjusted and unadjusted data, but in this case they weren't. Unadjusted data takes precedence in this case. My apologies. I have expunged the bad table and number because it is so far off.
Here is the revised table.
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Not seasonally
adjusted |
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percentage increase |
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1Q08 |
1Q07 |
increase |
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(not adjusted for inflation) |
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millions of dollars |
millions of dollars |
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| Retail sales |
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965,500 |
930,677 |
34,823 |
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3.7% |
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| Gasoline stations |
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115,984 |
94,898 |
21,086 |
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| Fuel dealers |
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18,090 |
14,969 |
3,121 |
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| Retail sales
except |
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| gas and fuel |
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831,426 |
820,810 |
10,616 |
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1.3% |
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| E-commerce |
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32414 |
28594 |
3820 |
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13.4% |
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| bricks/mortar
retail sales |
799,012 |
792,216 |
6796 |
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0.9% |
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| ex gas and fuel |
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| Share of
increase from e-commerce |
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36% |
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| Data:
Census |
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Posted by: Michael Mandel on June 25
Today's consumer spending numbers look pretty good, don't they? Up 0.8%, more than economists expected. Sounds like those U.S. households just keep spending, no matter how depressed they are.
But guess what? Those numbers have a hole big enough to drive a truck through (or a Fedex plane, more likely).
It turns out that if I live outside the U.S. and make a purchase on a U.S. website--say, Amazon.com or Apple.com--that purchase is likely to be counted as part of U.S. consumer spending. That is to say, the consumer spending numbers--which are just supposed to include spending by U.S. households--actually includes some portion of online sales to foreigners.
What's more, that number is surely growing rapidly because of the fall in the dollar over the past year, and because overseas economies have been stronger than the U.S. As dollar prices look cheaper to people living outside the U.S., they are more likely to be willing to buy from a U.S. website, even if there are shipping and customs costs.
As a result, there's no doubt that online sales to foreigners--counted in U.S. consumer spending--are surely growing at a rapid pace. In fact, it might be possible that Americans are actually cutting back on their spending--and we would never be able to tell from the numbers. From a statistical point of view, it's not a good situation.
Let's give an example. Blue Nile, the leading online retailer of jewelry, recently stepped up its overseas marketing efforts. For example, if you live in Australia and order a diamond ring, say, from Blue Nile's website, the company will offer free Fed Ex shipping as long as the amount is over $750. And for Australians, buying jewelry
from the U.S. has become a much more attractive proposition, because the Australian dollar has risen roughly 20% against the U.S. dollar over the past year, and 33% over the past two years.
For Blue Nile, overseas sales through its website--including not just Australia, of course, but many other countries--has been a great thing. According to their first quarter earnings report, sales rose by 3.8% over the previous year--but all of that gain was from overseas sales. Domestic sales have in fact been flat. When I talked to CEO Diane Irvine, she told me that "we are thrilled to have all these new markets," especially while the U.S. economy is still weak.
The Census Bureau, which collects the retail trade data on which much of consumer spending is based, knows about part of the problem. Here's what they say on their website :
Question: Are foreign sales included in the e-commerce estimate?
Answer: The e-commerce and total sales estimates include sales covering all store and non-store retail locations in the United States operated by a firm selected in the survey. Sales made to a customer in a foreign country through a U.S. web site are included in the estimates
So the question is: What counts as a U.S. website? Is it a website operated by a U.S. retailer? Is it any retail website with a .com suffix? Is it any website operated from the U.S., even if it has a .uk or .jp suffix? (Easy enough to do) Or do the retailers just lump everything in together when they fill in the forms?
For example, Amazon.com operates 7 international sites, including Japan, Germany, Austria, Canada, the United Kingdom, France and China. But everyone else buys from Amazon.com (if you live in Mexico or Spain, you might get the Spanish version of Amazon.com, but it's the same one that Spanish-speakers from the U.S. would get). What numbers does Amazon report to the government, and how do they break it down? They treat this as proprietary data, obviously, and wouldn't tell me when I asked (I don't blame them).
Meanwhile, Apple serves the whole world from one site, www.apple.com. For example, someone in Hong Kong who wants to buy from the online Apple store goes to http://store.apple.com/hk. Counted as part of U.S. consumer spending? Who knows?
I've got more to say about this topic..but enough for now.
P.S. If you live overseas and have bought something from a U.S. website recently, let me know! Or if you are a U.S. company getting a lot of international sales on your website, let me know! I am looking for more good examples.
Posted by: Michael Mandel on June 25
Is the Fed living in a fairy-tale world? Unemployment is rising, housing prices are plunging, and oil prices are sky-high. Oh, yes, and consumer expectations of their future economic prospects are at a record low, according to the Conference Board. The only sign of light is real consumer spending, which at least according to the official numbers, remains strong.
How can consumers keep spending,? No one knows. Yet the Fed has decided to believe in the cheerful official numbers, and stand pat, keeping the fed funds rate at 2%. In their statement today, the Federal Open Market Committee said
Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending....The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.
Now, holding at 2% for one meeting is not a big disaster. It's perfectly reasonable to wait and see what way the economy is going to go. And 2%, adjusted for inflation, is still equivalent to a negative real rate.
But it's important to realize that it just doesn't make sense that consumer spending should be firming up at this point in the cycle. What's far more likely is that the official numbers are overestimating retail sales and consumer spending, and that the actual numbers have actually been on a downtrend (more about that in a coming blog post). There's also a good chance, in my estimation, that we will see a sharp downward leg in spending, and an increase in savings, coming sometime soon.
What does that mean for the Fed? I still expect to see the fed funds rate drop as low as 1.5% in the near future, as evidence of the continued weakness in the consumer sector mounts, and starts to feed back into the banking sector. If consumer loan delinquencies keep rising, that will send a red flag up for Chairman Bernanke and his associates.
