Thar She Blows

Update: On this topic, see this ZeroHedge post and READ THE COMMENTS. Stuff like:

July is going to be worse. People were actually shopping in June.
I talked to a few people in Target looking at school supplies. They were writing down what they have. The women all said they are going to wait until school starts to buy the supplies because they know Target will put everything 50% off and then drop stuff to 75% a week later.
Nothing moved in summer seasonal until it was at least 50% off.
Reality is asserting itself. People don't have enough money to pay for the inflated prices of everything. Historical 20% profit margins will be coming back to retail. The consumer will no longer pay $20 for an item that was bought by the retailer for $7.
The problem is the immense overhead of big retail will destroy it with margins like that. Deflation is the only outcome when the population can't afford anything. At least when the free market allows it. Supply and demand says if nobody buys at price X, you must lower it until somebody does.
Mon, 07/16/2012 - 10:12 | 2620056 Abiotic Oil

Was in a local store this weekend. Huge summer clothing clearance sale. Talked to an employee who has been at the same store for 20 years and he said he has never seen so much summer clothing inventory left over or marked down as much as it was. It was finally moving at well over 50% off retail.

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Mon, 07/16/2012 - 10:30 | 2620120 Arnold Ziffel

July sales are dismal. Every store is nearly empty even with 60% discounts AND cash back rewards. I have never seen it so bad

End update.

I believe I mentioned regarding the last employment report that we appeared to be in a consumer recession, but not a manufacturing recession.

This morning's retail report for June confirms that belief. If you look at Table 2, retail sales in the second quarter were down 0.2% from Q1 retail sales. There's a clear drop off in the YoYs:

• 6 month YTD = +6.4%.
• May = +5.1%.
• June = +3.8%.

For June compared to May, it's -0.5%. May was negative in comparison to April, but the early Easter could have accounted somewhat for that. Adjusted for inflation, the YoYs are weaker than cited above. This graph only goes through May, because we don't have price indices for June yet:

In the US the rule of thumb is that real retail sales need to advance about 1% over the rate of population expansion. We seem to have fallen below that line in the last quarter.

The short term data is beginning to develop consistencies. The spike in May revolving credit was due to strapped consumers. The spike in female head of households out of work is largely due to slack retail, and one reinforces the other. What I really don't like is that auto advertising seems to be shifting to the credit downside. This could accelerate the retail downturn over Q3.

Now factor the recent sharp drops in some of the manufacturing surveys into the consumer-side picture (for example, the last two months of Chicago PMI abruptly changed trend to came in significantly below the 10 year and 40 year means and medians), and a vision of epic beauty and promise materializes in your mind's eye - if you are a Romney campaign worker, that is. If you are a Romney policy wonk hoping for a job in the Romney administration next year, this is a bad development.

Empire State Manufacturing came out this morning, and although it increased, new orders fell significantly, and the headline level is about where it was at the beginning of the last recession.

One of my brothers called me this weekend to report on the gun show index, and he told me flatly that it looked like a depression.