March 14, 2008
Looking even more like a recession
The Census Bureau announced yesterday that the seasonally adjusted nominal dollar value of retail and food services sales fell by 0.6% between January and February, the worst monthly performance since June's -0.8% value.
Census reports a confidence interval around these monthly estimates of plus or minus 0.5%. Following Calculated Risk, we can smooth out some of the monthly noise by looking at year-on-year growth rates, and translate the nominal values into real magnitudes using the personal consumption expenditure deflator. I've created a longer series than CR by using growth rates for the now-discontinued retail sales series prior to 1993, and used a slightly more favorable calculation for the real February figure by supposing that there is no change between the January and February PCE deflators.
The 0.8% year-to-year real drop calculated in this conservative manner is the worst observation since 2002. Retail sales and employment are now both reflecting the kinds of values we'd expect to see in a recession.
Posted by James Hamilton at March 14, 2008 07:56 AMdigg this | reddit
At this point, it still looks like a mild recession from your data. There's no comparison so far with the long bar of the 1990 recession (or earlier recessions, nor even the non-recession of 1967-8). There is more resemblance to the barely-recession of 2001.
I have a sense that there's a lot more bad news to come, however, not centered in the retail sector.
Posted by: Charles at March 14, 2008 08:19 AM
And the BLS says we are still adding those waitresses and bartenders.
Posted by: me at March 14, 2008 10:07 AM
Yes it certainly does, it'll be interesting to see how this is reflected in the GDP figures, mainly because since 2000 there has been a massive hollowing out of US manufacturing, and as a result the slowdown in domestic demand disproportionately hits imports. I noticed that according to Haver, non-petroleum imports slowed by -2.9% in december and -1.1% in January, while exports grew by 1.5% and 1.6% respectively.
Of course that leaves out a lot as petroleum imports are a pretty huge part of the deficit.
But as long as the world economy remains strong these effects will probably continue and strengthen.
The other thing to throw into the mix is the rate of write downs, according to Deutsche Bank the global rate, of which the US accounts for a little more than half, hit $131bn in Q4 up from $50bn in Q3.
Clearly there's a lot more to come, but even a slowing of the rate could make a significant difference to the depth of any recession/slowdown.
Posted by: bill j at March 14, 2008 10:25 AM
Yes it is, Professor.
But, at least with CPI coming in at zero increase for the month, and with BLS informing us that fuel and transportation prices are in fact falling,
I can comfortably ignore the nice upward movement in airfares for the sales/marketing/clinical folks at my company:
Who should I believe, my lying eyes or the BLS?
Maybe I should hand the CPI report to the gas station attendant, where gas is now running $3.59 per gallon for 87 octane.
Posted by: jg at March 14, 2008 11:37 AM
I also note today's news on Bear Stearns. It looks like the timeframe for figuring out how to rescue insolvent parts of the financial system is weeks, not months. The arrangements announced today seem like just a temporary stopgap.
I would like to re-ask a question no-one answered a couple of weeks ago - what stops the Fed from buying newly issued Bear Stearns stock? (Possibly with the help of intermediaries like JP Morgan). Can the Fed in effect partially nationalize Bear Stearns at its own discretion, or does it need the involvement of congress?
Posted by: Stuart Staniford at March 14, 2008 01:41 PM
I just figured it out, the flat February CPI.
Though prices at the pump were rocketing up in February, I forgot to consider the 'hedonic adjustment' I was making: driving more slowly, making fewer trips, walking to the pizza place once.
Silly me, I forgot all about my hedonic adjustment. Yes, my transportation outlays remained flat for the month, maybe, although I received fewer transportation services.
Oh, and more rice and bean meals as cost-saving measures and as part of Lent kept my food outlays in check, too, I guess.
Posted by: jg at March 14, 2008 04:20 PM
Since 1972, the year-over-year nominal growth rate has trended down. Does anyone have an idea why this would be? The trend is down even when we remove the data from the 70's, and also when we remove both the 70's and 80's, and just focus on the growth rate since the 90's.
Posted by: ApacheTrout at March 14, 2008 04:26 PM
A recession probably doesn't begin to describe what is underway.
I am thinking of the possibility of a Super Depression if they don't hurry up and stop the dominoes from crashing through the glass ceilings on the way to planet Earth's surface.
Posted by: Movie Guy at March 14, 2008 06:00 PM
Again, I think a recession already began in December 2007. In fact, it is a classic 'V' shape, and a steep one at that.
We might already be close to the half-way point. If anything, we could be in a recovery by August or Sept (9-month recession), which makes the recession a bit too soon to be helpful to the Democrats.
Posted by: GK at March 14, 2008 06:33 PM
Stuart, as I understand it, the Fed does have the power on its own to purchase any kind of security, even common stock. Reporting on the so-called "plunge protection team" or "president's working group" goes back to this article in the Washington Post. That article, notably, does *not* involve direct purchase of stock. But there are other press reports that index futures have been used to manipulate market prices. Supposedly, a Canadian report substantiates this and other techniques.
But if this is so, probably the Fed doesn't take assets onto its balance sheet. If an audit found the Fed balance sheet stuffed with dodgy stocks, that would create a serious risk of undercutting confidence in the system. Rather, the Fed increases the borrowing power of banks, and they do the buying. There are rumors that the Japanese are part of the game.
In the last year, the Fed has undertaken unprecedented actions, especially in regard to taking dodgy securities as collateral. This move with Bear takes it to a whole new level. It does represent a kind of socializing of risk/ privatizing of profits of a kind that historian Gaetano Salvemini noted was characteristic of fascist regimes.
Not to compare Ben Bernanke with Mussolini; by no means. But the Bear bailout was so completely devoid of precedent that I do see a slippery slope before us.
Posted by: Charles at March 15, 2008 10:12 AM
As if on cue, Barry Ritholtz presents a chart (via Shadowstats and Tim Iacono) showing that if inflation were measured as it was in the 1970s, it would be at 6.5-7.5% level.
Posted by: Charles at March 15, 2008 10:34 AM
The history of Continental-Illinois which was the 7th biggest bank in 1984 and got in trouble and had to be bailed out. It ended up being partially nationalized. Since that was a single bank, the FDIC was large enough to handle it, though the Fed provided as much credit as needed.
So the Bear Stearns situation is not as unprecedented as all that, though I suspect the ultimate number of institutions at risk here is quite a bit larger than one.
Posted by: Stuart Staniford at March 15, 2008 03:35 PM
Ah, Stuart! You missed the key difference. Continental-Illinois was a bank. The FDIC provided the cash. Bear is not a bank.
That's why this is unprecedented.
Posted by: Charles at March 16, 2008 11:00 AM
That ShadowStats guy is a whackjob - no wonder Barry cites him. Looking at some of his charts, he has inflation since 1998 running no less that 8% per year and sometimes higher than 10%. Over a 10 year period, 8% inflation means that the price level has more than doubled. I don't know about you, but that is wildly at variance with my experience.
Posted by: Rich Berger at March 18, 2008 09:38 AM
So, if I understand what you're saying, Rich, "everyone is a 'whackjob' except me and thee, and I'm not so sure about thee."
Posted by: Charles at March 18, 2008 11:02 PM