Thursday, January 15, 2009

End of An Era

Retail sales for the month of December were announced yesterday. The number was much worse than expected, creating a rather severe reaction in Wall Street.

Or is it Wall Alley, these days? Merrill's thundering herd has been reduced to a wimpering clutch and Smith Barney's owner (Citigroup) doesn't seem able to earn it "the old fashioned way" and must sell it to raise cold hard cash. Sic transit gloria mundi, indeed... I point those two investment banks in particular, with not a little sadness, because they were my employers for a considerable number of years, way back when...

Anyway, back to retail sales. They certainly do look sick (see chart below).

Nevertheless, we must take into account the fact that gasoline prices have tumbled sharply in recent months and thus influence gross numbers more than usual. Here is a chart that compares total retail sales (red line) with sales excluding gasoline stations (blue line). Still pretty bad, but not as horrible as the headline number.

Nevertheless, the break in the trend is significant - unprecedented, even, in our modern-era consumer society. It remains to be seen if it marks a tectonic shift away from the vicious debt-induced Permagrowth cycle (borrow-consume-borrow), towards a more benign Sustainable paradigm. I believe it does - mostly because I hope so, but also because I can recognize from history certain signs common to all "end-of-an-era" periods.

Yes, most people may wish the party to go on, but deep down they know it's over. And this knowledge affects their behavior very significantly. When it's over, it's over.


  1. I question whether the change is as dramatic as the graph seems to imply. US population grew by +- 50 million people since '92. That increase in the number of people would necessarily lead to an increase in the amount of retail sales.

    I can only assume that the downturn would be less dramatic if the change in population was nullified along with gas price.

    I'm hesitant to believe this depicts the tectonic shift you want it to be. Sorry. Changing the majority's value system will take more than a few months. (if it's even possible)

    Could the downward shift be explained by the cessation of luxury purchases by the wealthiest o.x% (and wall street), as well as a switch from name brand goods to generic goods in the average household (and switching from sausages to hot dogs?)?

    I doubt the "joe-whoever majority" has come to the same conclusions you or I have (that the game is over). Seems more reasonable to say they've just postponed the purchase of (insert obnoxiously unnecessary thing here), while paying more attention to the price... so they can continue at the level of consumption they're accustomed to.

    I'm afraid we still have YEARS to go until the majority comes around.

  2. Dear cottonbloggin:

    There is no question that "population is destiny". So, think again: since the US population is GROWING by ~1.1%/yr, a net DROP in retail sales, particularly as large as the one shown in the charts, means there is significant change in attitudes taking place.

    By the way, I expect population growth to slow down significantly, due to a drop in immigration.


  3. As the crusty old merchants say, "Life is tough, retail is tougher."

  4. Immigration likely fell off a cliff a while back, Hell. Look at remittances to Mexico etc. Those have collapsed over the last year too. A lot of people have gone back south because there is no work for them here. When they leave they take all of their sales tax dollars with them. Wal-mart is just lucky that there are plenty of formerly middle class folks moving down the ladder to take their place in the check out lane.

  5. I find it amusing how at the height of the tech bubble our representatives in congress embraced immigration via lifting restrictions on visas like the H-1. "We are a nation of immigrants, blah blah blah.Then when the economy turns we must protect our borders.

    Wouldn't honesty be refreshing?

    Congressman Joe: People, we need cheap labor to support this economy!

    Public: Thanks for your honesty Joe! But is this type of economy really a good idea?

    Congressman Joe: maybe not. Lets reconsider

    Crisis averted.

  6. Wall Street==>Wall Alley==>Skid Row

    It is game over.

    Joe M.

  7. Nice post Hell

    And protect our borders from what???

    Why do some people always feel the need to take this out on immigrants (e.g the other guy)?

    Even if one concedes the validity of the anti-immigrants' most controversial claim, namely measurable differences in general intelligence amongst different ethnicities are real and strongly correlate with national wealth, still the very focus of the discussion goes WAY DOWN THE WRONG ROAD IMHO... and FYI I DO NOT concede the issue is nearly as 'rigid' as anti-immigrants often imply with their data, as Steven Pinker rightfully points out (start 1:32:13).

    For the simple reality is that the aggregate behavior of people who consume far more resources than they contribute to 'the collective' are causing the ship to sink. And in total dollars, when one subtracts consumption from contribution and gets a net contribution number, far more money is consumed by certain native born white Americans than is the net contribution or consumption of ALL immigrants in the US combined. And to the extent Americans focus ANY of their attention on immigration as opposed to the simple notion of net contribution, they entirely miss the main issue (IMHO). Their whole argument seems a kind of bubble in its own right.

    Valuable work is valuable work whoever does it. Consumption is consumption whoever consumes it.

    It is what it is.

    Long Island is not an immigrant haven of the kind most 'anti-immigrants' complain about (usually anti immigration is a code for "anti hispanic" anyway) but it is quite clear that New York, Long Island, Boston, West Los Angeles (NOT East Los Angeles), Philadelphia, Washington DC, Miami, etc... and certain other "uber" health care consuming region of this country (all rich and white) are sinking our collective ship as they suck monies from one part of the country-economy to their own for their own personal profit. And these areas are saddling the rest of us with the lions share of a $52 Trillion liability... It will take an awful lot of immigrants to consume $52 Trillion.

    How did our culture ever get into such a cognitive-dissonance bubble?

    Your numbers don't add up, call a spade a spade

  8. "Why do some people always feel the need to take this out on immigrants (e.g the other guy)?"

    Because that is the only negative debate our media actively allows and sponsors.

    If you still think most people in this country independently think and understand what is going on and whose pocket is filled by all these bailout money, I got a bridge to sell you :)

  9. "How did our culture ever get into such a cognitive-dissonance bubble?"

    Psychological trauma via religion? How long can anyone discuss birth control or end-of-life care without someone bringing up the Bible?

    They're throwing The Commons under the bus so they can get into heaven.

  10. "Changing the majority's value system will take more than a few months."

    Unless you're referring to their FICO score. This zeitgeist may be involuntary.

  11. Credit creation via the shadow banking system has declined as residential real estate was the focus of consumer credit creation this decade and a current key driver of household net worth. Credit creation based on innovative financial engineering has died and with it at least on temp basis the froth of consumer consumption.

  12. Years ago, the late actor John Houseman did a series of commercials for Smith Barney, that popularized the phrase "made money the old fashioned way, they earn it." Houseman's best performance however was parodying that same commercial on SNL. For the parody, the phrase was changed to "Smith Barney, they make money the old fashioned way -- they steal it!"


  13. I thought they made money the old fashioned way by printing it. Or is that the soon to be only way?