September 15, 2003

Recovery or Rout?

Which is it going to be, a recovery or a rout? Dick Cheney was on T.V. this weekend talking up third quarter economic growth. And we’re supposed to be encouraged by Friday’s news that retail and restaurant sales rose 0.6% in August. But take a closer look my friends. And as you look at the numbers, remember that binging consumers going berserk with credit cards is what got us into this debt mess to continue with. Consumer spending will not grow the economy out of debt. Neither will government spending. In fact, no one spends his way to prosperity. But even if you could do that, the Commerce Department’s numbers do NOT show evidence of a growing economy with reflationary pressures. Quite the opposite. Friday’s report showed that retail sales at Electronics Stores were up +1.4% in August. Greg Weldon reports that this takes the unadjusted year-year gain to +9.4%, nearly triple June’s 3.8%. “But,� Greg ads, “this comes at the expense of Building Materials and Clothing, both of which posted outright sales contractions during August: ·Sales of Building Materials … down (-) 0.2%, its first decline in many moons, and driving the yr-yr growth down to +4.6% from+9.5% in July, and +9.3% in June. · Sales of Clothing … down (-) 1.4% month, following three consecutive monthly increases, resulting in a LOWLY yr-yr growth rate of +1.5%, down HUGE from July’s +7.5%, and lower than June’s lowly +2.1% growth. In fact, the latest numbers show that the year over year rate for retail sales growth has fallen in half since July. Sales were growing at annual pace of 6% in July. By the end of August, they were growing at 3%. And even where sales were strong, pricing power is fell. When the Producer Prices Index report came out on Friday, it reported that prices for Home Electronics Equipment actually DEFLATED by 3% on a year-over-year basis by a DEEP (-) 3.0% year-year. Again, courtesy of the macro-data-master Weldon, we learn that consumer electronic prices have not had a single month of price increases in the last four months. By the way, don’t you think this sounds like exactly what happens when the world shifts its industrial production to Asia and counts on the U.S. consumer to be the engine of growth? Wouldn’t you get falling prices for consumer electronics even on higher sales? So let’s get the “recovery theory� straight: modest sales growth in consumer electronics, where prices are actually falling, is supposed to lift the $9 trillion U.S. economy out of the doldrums and into 6-7% economic growth for the third quarter. Is that about right? Forget the jobless nature of the so-called recovery. Forget the soaring government debt. Forget that we’re entering political season and Congress is rattling its trade-war saber. And forget the $32 trillion in aggregate debt that the U.S. economy is already laboring to pay the interest on, even as it hopes to spend its way out of weak growth. In fact, you’re using the eco news as an excuse to go long stocks, you’d BETTER forget all the immense obstacles that stand between a rosy economic scenario and what the rest of us call reality. Only an opportune case of amnesia would allow you forget that stocks are already valued for a strong economic recovery that has yet to materialize, and probably won’t.


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