The Commerce department today reported that retail sales for May were up an astounding 1.4%, despite most retailers and automakers warning of lackluster to declining sales for the month. The Commerce department attributed a large part of the increase to a new heuristic birth/death model for retail sales that reflects Americans growing propensity to shop only at newly opened stores that are not captured in the initial monthly data. Of course I'm just making that up (probably), but the numbers just don't jive with what most large retailers and automakers have been saying. Either the inflation numbers Friday are going to be very ugly, or June is going to is going to be a downside reversion, just like April.
The retail sales data released today is totally bogus. Almost all of the giant retailers already reported much lower sales and yet "official" government data reports retails sales up considerably??? Even auto sales were higher despite the Big 3 issuing reduced sales. I am sorry but 1+1=3 only in "official" government data. The entire U.S. economy must be toast if significant data manipulation is required to keep it afloat. Buy physical gold and silver to protect yourselves!
have the same question...how is that possible, given that mortgage debt is at all time high right?
My understanding is that it is 'debt service' as a percentage of personal disposable income... so if income rose faster than debt growth than that would explain the topping & decline.
If that was the case it would be ASTONISHINGLY good news for the long haul... But as CR pointed out debt load is still near record highs, things will have to re-balance a lot more before we are back to sane levels of personal debt. As it is now, one serious round of lay offs and we're in hot water.
But if we don't have serious lay offs and incomes continue to rise on pace and consumers don't over-load on more debt... we could claw our way out of this mess... slowly over time.
I'm actually not suggesting the data is bogus as in faked, but the large upside/downside misses in Commerce department data of late tell me that they're having a lot of trouble compiling and seasonally adjusting this series, so today's upside surprise should be taken with a grain of salt, and I'll put more weight on what the retailers are saying.
Of course incomes are rapidly rising for the lucky few and stagnating for the masses... And many are unable to amortize their current debt... Rising rates could make this spiral out of control for the unlucky....
Good points Turbo but the government of late has been adding jobs so with additional employees data collection should be getting better not worse. Also, with rising gasoline and food prices, almost stagnant wages, and a sharply declining housing ATM, reason indicates to the wise that the "official" government numbers are quite unrealistic to say the least. The theme of suspect "official" reports is also widespread and not just limited to the latest retail sales report for May.
Of course one or two private equity partners cashing out and buying the retirement yacht might be enough to offset sales declines at all mid-western Wal-Marts for a month.
The positive number surprised the hell out of me given the negative retailer sentiment recently. It surprised the economists too, apparently, coming in 2x expectations.
But somebody made a good point that these are nominal numbers. The import prices number came in at 3x expectations, so it's at least possible that the gain in retail sales could be mostly wiped out by the inflation adjustment.
It should take more than a couple monthly data points to convince anyone (who isn't already convinced) that a seven year trend is now reversing but it is a short to intermediate term encouraging sign none-the-less; at least it implies wages may be doing a bit of catch-up and/or household debt management is improving and that is good news for families even if the former might not be good news for the economy as a whole longer term.
Unfortunately it appears there may be somewhat less optimistic interpretations; presumably foreclosure, bankruptcy, reduced sales, etc reduces the amount of debt to be serviced WRT this statistic -- yes, no? What is the composition of the indicator and how is the estimate arrived at? It's not specified in the report nor is it clear what the sampling methodology is but it looks like the FOR statistic might tell us more about the actual debt burden of households than the DSR.
PS: FWIW count me among those disinterested in a retail thread; the general investment boards are already covering that (obscured by mooing and bellowing here and there) and, as a single data point that could be revised, there seems little hope of gaining much analytic traction with it at the moment. From an investing perspective it's the sort of unexpected event that could be quite interesting shorter term but frankly I'm more interested in the topic of this thread (including ways DSR and FOR might contribute to analysis of the economy) and CRE trends myself. JMO
Would someone please point me in the right direction to the "Rising Income" section of the Employment Line.
lately the only number I believe to be a correct evaluation of the real economy is what is in my right pocket at the end of a hard work week...which from the looks of it...we are already Depressed.
Disposable personal income is reported as up 8.0% first quarter. Real disposable income is reported up 4.5% first quarter. Increase the denominator and the result will fall.
I know I'm enjoying my 8.0% increase, how about you?
I am inline for my annual 3.5% increase...but my Health Insurance went up 5%...yup typical upside down take it up the tail pipe increase...Yet they require more out of me....go "F" yourself.
I totally agree with the sentiment that the macro trend in lending and debt is contracting and that it is an interesting topic. But, I think there are a lot of people on this blog and elsewhere that are interested in its translation as well, and I think the retail numbers are getting a lot of attention because of it. I think it is fair to say that it is taking an fairly lengthy amount of time for the other shoe to drop and people are very curious as to when this will happen. Seriously, how long can we live with a negative savings rate......
Household Debt Service Declines in Q1 - obviously because of using option mortgages, is it not?
The latest Q1 report of BKUNA bank says that pretty much all people who have option mortgages are paying only the minimal amount all the time, comparing with Q4, when they did not yet.
Retail numbers not adjusted for inflation, therefore difficult to know what is going on.
By the way, if you look at the retail numbers, supposedly one of the current leaders is clothing, but the data points for the different types of clothing retailers are not given and not even available at the time of this report. How about that, the rise in retail lead by an entirely estimated component? If one were suspicious..
Plainly put, the increase in fat cat income first quarter skewed disposable personal income enough to drive down household debt service ratio. The old line being Bill Gates and 3 bums in a room-on the average they are all doing well financially.
Well, the household debt service didn't get less because housing is more affordable. Found this on CNN/Money from the Harvard Joint Center for Housing Studies.
Study: Housing grows even less affordable
Even on the downside of the housing price peak, housing expenses are becoming more of a burden for Americans.
By Les Christie, CNNMoney.com staff writer
June 13 2007: 1:38 PM EDT
NEW YORK (CNNMoney.com) -- Home prices may have fallen this year, but a new study says housing has become more unaffordable. And if interest rates continue to rise, the balance could tip even further.
According to the 2007 State of the Nation's Housing report from the Joint Center for Housing Studies of Harvard University, 17 million of American households in 2005 were putting more than half their income into paying for shelter - a rise of 1.2 million from the prior year, and a jump of 3.2 million from 2001.
"There's an ongoing affordability problem - and it's getting worse," Rachel Drew, a research analyst with the center, said at a conference earlier this week in New York.
Three main factors intersect to affect affordability: mortgage rates, income and prices.
Mortgage rates have generally been a favorable part of the equation. Since the start of 2001, they've ranged from an average of 5.23 percent for a 30-year fixed in June, 2003 to 7.16 percent in June of 2006. Even after the Federal Reserve started raising its rates in June, 2004, mortgage rates stayed low.
Median income, however, has dropped. Real wages fell from 2000 to 2005, according to the report. By 2006 household income was 1 percent below 1999 levels, according to stats from the Current Population Study of the U.S. Census Bureau.
Wages dropped but mortgage rates held steady; affordability shouldn't have suffered too badly if the third part of the equation - housing costs - remained stable.
But they didn't. Single-family home prices skyrocketed, from an inflation-adjusted median of $154,563 in 2000 to $221,900 in 2006, according to the National Association of Realtors (NAR), for an increase of 46 percent.
According to Drew, the affordability decline trend cuts across all incomes. The bottom 25 percent of earners have been hit hardest, but even among the top quarter, the number of households that devote more than half their incomes to housing costs has increased.
That trend accelerated through the housing boom. By 2006, homeowners paid a median of 25.4 percent of their incomes to mortgage payments alone, according to the Harvard study, up from 18.9 percent in 2003.
Housing prices have fallen but the drop has been modest so far; the Mortgage Bankers Association (MBA) forecast a total nominal median home price decrease of between 1 percent and 2 percent this year, hardly a huge savings for buyers.
Not only that, but a drop in housing prices could be wiped out by interest-rate hikes. Freddie Mac, a government-sponsored mortgage-loan buyer, reported that its national average for a 30-year fixed rate hit 5.53 percent last week, a 10-month high. The agency's next mortgage rate report is due Thursday with higher rates expected.
Mortgage rates are benchmarked to bond yields, which have risen this week - the 10-year Treasury hit 5.32 Wednesday for a five-year high.
If the trend continues, analysts, like Doug Duncan of the MBA, have said they expect to see 30-year fixeds topping out near 7 percent by the end of the year, which is 0.85 percent above a May 10th low.
The difference means monthly mortgage payments would be 9 percent higher; it's like adding almost a tenth to the cost of a home, which more than offsets the slight price declines. Top of page
Retail grew by how much?
Fast Growing leader
Arizona's latest numbers:
"April sales tax revenues
continued to be sluggish. Retail
collections grew only 3.5%, and
contracting collections
decreased (0.9)% on a yearover-
year basis. This is the
second month in a row
contracting collections have
declined. The reduction in
contracting is tied to the level
of construction activity. On a
month-over-month basis,
construction employment
declined by 600 jobs in April. By
way of comparison, April-over-
March construction employment
has grown at an average
rate of 1,600."
When you start stripping out population growth, and realize that the contracting tax collections have been falling, the picture starts looking much worse. Further on in the same report, current income tax collections are reported as falling below trend-"Individual Income Tax collections were $603.7
million in April, or (2.8)% below last year." Um, income growth not reported here, sir. (The page cannot be found
I did notice in the fourth paragraph of Crutsinger's AP report (Expired an interesting sort of footnote:
"Sales would have been strong even without last month's big jump in gasoline prices, which saw prices top $3.20 per gallon. Excluding sales at gasoline stations, overall retail sales would still have been up 1.2 percent."
Um, 1.2 percent. Wow, detrend that for inflation in commodities pushing through and I bet you get near negative in real terms.
All in all, the data don't seem to justify Wall Street's good times are here response- but then Wall Street takes any excuse for a party;-}
Someday this war's gonna end...
but the stimulation seems to have run out.
Mainly, if someone is doing a 30 year mortgage and they don't expect prices to drop more than 20% where they want to buy, then yes.. there's no need to wait.. because interest rates would only need to rise to 7.66% from 5.5%
Though, I'm seeing average 30 year rates at 6.5%.. so that would mean rates would have to rise to over 8.8% to end up paying out the same overall.
Now, if you're dealing with 15 year rates.. the necessary interest rate increase needed to counteract a price drop is even more. They'd have to go from 6.5% to about 10.2% to compensate for a 20% drop in price.
Anyhoo, it's fun to run the numbers on these things. If you're in Southern California or South Florida.. I'd say wait out the price drops unless you expect mortgage rates to go above 10% in the next few years. (I am assuming a greater than 20% price drop from now)
Interest rates can do whatever they want.. so.. be careful.
PS My numbers can be a little fuzzy.. but the magnitudes of change should be about right.
No retail sales thread today?
how is that possible ?
Dear Yal,
I have the same question...how is that possible, given that mortgage debt is at all time high right?
Where did the improvement come from?
Regards,
Could the change be foreclosures?
The Commerce department today reported that retail sales for May were up an astounding 1.4%, despite most retailers and automakers warning of lackluster to declining sales for the month. The Commerce department attributed a large part of the increase to a new heuristic birth/death model for retail sales that reflects Americans growing propensity to shop only at newly opened stores that are not captured in the initial monthly data. Of course I'm just making that up (probably), but the numbers just don't jive with what most large retailers and automakers have been saying. Either the inflation numbers Friday are going to be very ugly, or June is going to is going to be a downside reversion, just like April.
The retail sales data released today is totally bogus. Almost all of the giant retailers already reported much lower sales and yet "official" government data reports retails sales up considerably??? Even auto sales were higher despite the Big 3 issuing reduced sales. I am sorry but 1+1=3 only in "official" government data. The entire U.S. economy must be toast if significant data manipulation is required to keep it afloat. Buy physical gold and silver to protect yourselves!
Fireworks
have the same question...how is that possible, given that mortgage debt is at all time high right?
My understanding is that it is 'debt service' as a percentage of personal disposable income... so if income rose faster than debt growth than that would explain the topping & decline.
If that was the case it would be ASTONISHINGLY good news for the long haul... But as CR pointed out debt load is still near record highs, things will have to re-balance a lot more before we are back to sane levels of personal debt. As it is now, one serious round of lay offs and we're in hot water.
But if we don't have serious lay offs and incomes continue to rise on pace and consumers don't over-load on more debt... we could claw our way out of this mess... slowly over time.
That's my guess of what the numbers say.
I'm actually not suggesting the data is bogus as in faked, but the large upside/downside misses in Commerce department data of late tell me that they're having a lot of trouble compiling and seasonally adjusting this series, so today's upside surprise should be taken with a grain of salt, and I'll put more weight on what the retailers are saying.
How about fewer auto purchases, less MEW and a few foreclosures all divided by rising income... seems reasonable....
Of course incomes are rapidly rising for the lucky few and stagnating for the masses... And many are unable to amortize their current debt... Rising rates could make this spiral out of control for the unlucky....
Good points Turbo but the government of late has been adding jobs so with additional employees data collection should be getting better not worse. Also, with rising gasoline and food prices, almost stagnant wages, and a sharply declining housing ATM, reason indicates to the wise that the "official" government numbers are quite unrealistic to say the least. The theme of suspect "official" reports is also widespread and not just limited to the latest retail sales report for May.
Fireworks
Of course one or two private equity partners cashing out and buying the retirement yacht might be enough to offset sales declines at all mid-western Wal-Marts for a month.
how is that possible ?
Big decline in mewing and home sales sould lead to a decline in mortgage debt service, no?
No retail sales thread today?
Steve,
The positive number surprised the hell out of me given the negative retailer sentiment recently. It surprised the economists too, apparently, coming in 2x expectations.
But somebody made a good point that these are nominal numbers. The import prices number came in at 3x expectations, so it's at least possible that the gain in retail sales could be mostly wiped out by the inflation adjustment.
Friday's a big day.
Maybe all the people tossed out of their home moved back in with the folks and aren't paying rent :-
It should take more than a couple monthly data points to convince anyone (who isn't already convinced) that a seven year trend is now reversing but it is a short to intermediate term encouraging sign none-the-less; at least it implies wages may be doing a bit of catch-up and/or household debt management is improving and that is good news for families even if the former might not be good news for the economy as a whole longer term.
Unfortunately it appears there may be somewhat less optimistic interpretations; presumably foreclosure, bankruptcy, reduced sales, etc reduces the amount of debt to be serviced WRT this statistic -- yes, no? What is the composition of the indicator and how is the estimate arrived at? It's not specified in the report nor is it clear what the sampling methodology is but it looks like the FOR statistic might tell us more about the actual debt burden of households than the DSR.
PS: FWIW count me among those disinterested in a retail thread; the general investment boards are already covering that (obscured by mooing and bellowing here and there) and, as a single data point that could be revised, there seems little hope of gaining much analytic traction with it at the moment. From an investing perspective it's the sort of unexpected event that could be quite interesting shorter term but frankly I'm more interested in the topic of this thread (including ways DSR and FOR might contribute to analysis of the economy) and CRE trends myself. JMO
Rising Income???????
Would someone please point me in the right direction to the "Rising Income" section of the Employment Line.
lately the only number I believe to be a correct evaluation of the real economy is what is in my right pocket at the end of a hard work week...which from the looks of it...we are already Depressed.
Look at the income numbers for the answer.
Disposable personal income is reported as up 8.0% first quarter. Real disposable income is reported up 4.5% first quarter. Increase the denominator and the result will fall.
I know I'm enjoying my 8.0% increase, how about you?
Steve, I've been busy - I haven't even looked at retail yet. If you'd pay me more ...
Best Wishes.
This is an outrage, CR. I demand my money back!
I am inline for my annual 3.5% increase...but my Health Insurance went up 5%...yup typical upside down take it up the tail pipe increase...Yet they require more out of me....go "F" yourself.
RW,
I totally agree with the sentiment that the macro trend in lending and debt is contracting and that it is an interesting topic. But, I think there are a lot of people on this blog and elsewhere that are interested in its translation as well, and I think the retail numbers are getting a lot of attention because of it. I think it is fair to say that it is taking an fairly lengthy amount of time for the other shoe to drop and people are very curious as to when this will happen. Seriously, how long can we live with a negative savings rate......
Household Debt Service Declines in Q1 - obviously because of using option mortgages, is it not?
The latest Q1 report of BKUNA bank says that pretty much all people who have option mortgages are paying only the minimal amount all the time, comparing with Q4, when they did not yet.
Retail numbers not adjusted for inflation, therefore difficult to know what is going on.
By the way, if you look at the retail numbers, supposedly one of the current leaders is clothing, but the data points for the different types of clothing retailers are not given and not even available at the time of this report. How about that, the rise in retail lead by an entirely estimated component? If one were suspicious..
Plainly put, the increase in fat cat income first quarter skewed disposable personal income enough to drive down household debt service ratio. The old line being Bill Gates and 3 bums in a room-on the average they are all doing well financially.
Follow the money train...
The Police State Road Map
Well, the household debt service didn't get less because housing is more affordable. Found this on CNN/Money from the Harvard Joint Center for Housing Studies.
http://money.cnn.com/2007/06/13/real_estate/housing_costs_even_less_affordable/index.htm?postversion=2007061313
Study: Housing grows even less affordable
Even on the downside of the housing price peak, housing expenses are becoming more of a burden for Americans.
By Les Christie, CNNMoney.com staff writer
June 13 2007: 1:38 PM EDT
NEW YORK (CNNMoney.com) -- Home prices may have fallen this year, but a new study says housing has become more unaffordable. And if interest rates continue to rise, the balance could tip even further.
According to the 2007 State of the Nation's Housing report from the Joint Center for Housing Studies of Harvard University, 17 million of American households in 2005 were putting more than half their income into paying for shelter - a rise of 1.2 million from the prior year, and a jump of 3.2 million from 2001.
"There's an ongoing affordability problem - and it's getting worse," Rachel Drew, a research analyst with the center, said at a conference earlier this week in New York.
Three main factors intersect to affect affordability: mortgage rates, income and prices.
Mortgage rates have generally been a favorable part of the equation. Since the start of 2001, they've ranged from an average of 5.23 percent for a 30-year fixed in June, 2003 to 7.16 percent in June of 2006. Even after the Federal Reserve started raising its rates in June, 2004, mortgage rates stayed low.
Median income, however, has dropped. Real wages fell from 2000 to 2005, according to the report. By 2006 household income was 1 percent below 1999 levels, according to stats from the Current Population Study of the U.S. Census Bureau.
Wages dropped but mortgage rates held steady; affordability shouldn't have suffered too badly if the third part of the equation - housing costs - remained stable.
But they didn't. Single-family home prices skyrocketed, from an inflation-adjusted median of $154,563 in 2000 to $221,900 in 2006, according to the National Association of Realtors (NAR), for an increase of 46 percent.
According to Drew, the affordability decline trend cuts across all incomes. The bottom 25 percent of earners have been hit hardest, but even among the top quarter, the number of households that devote more than half their incomes to housing costs has increased.
That trend accelerated through the housing boom. By 2006, homeowners paid a median of 25.4 percent of their incomes to mortgage payments alone, according to the Harvard study, up from 18.9 percent in 2003.
Housing prices have fallen but the drop has been modest so far; the Mortgage Bankers Association (MBA) forecast a total nominal median home price decrease of between 1 percent and 2 percent this year, hardly a huge savings for buyers.
Not only that, but a drop in housing prices could
Not only that, but a drop in housing prices could be wiped out by interest-rate hikes. Freddie Mac, a government-sponsored mortgage-loan buyer, reported that its national average for a 30-year fixed rate hit 5.53 percent last week, a 10-month high. The agency's next mortgage rate report is due Thursday with higher rates expected.
Mortgage rates are benchmarked to bond yields, which have risen this week - the 10-year Treasury hit 5.32 Wednesday for a five-year high.
If the trend continues, analysts, like Doug Duncan of the MBA, have said they expect to see 30-year fixeds topping out near 7 percent by the end of the year, which is 0.85 percent above a May 10th low.
The difference means monthly mortgage payments would be 9 percent higher; it's like adding almost a tenth to the cost of a home, which more than offsets the slight price declines. Top of page
Retail grew by how much?
Fast Growing leader
Arizona's latest numbers:
"April sales tax revenues
continued to be sluggish. Retail
collections grew only 3.5%, and
contracting collections
decreased (0.9)% on a yearover-
year basis. This is the
second month in a row
contracting collections have
declined. The reduction in
contracting is tied to the level
of construction activity. On a
month-over-month basis,
construction employment
declined by 600 jobs in April. By
way of comparison, April-over-
March construction employment
has grown at an average
rate of 1,600."
When you start stripping out population growth, and realize that the contracting tax collections have been falling, the picture starts looking much worse. Further on in the same report, current income tax collections are reported as falling below trend-"Individual Income Tax collections were $603.7
million in April, or (2.8)% below last year." Um, income growth not reported here, sir. (The page cannot be found
I did notice in the fourth paragraph of Crutsinger's AP report (Expired an interesting sort of footnote:
"Sales would have been strong even without last month's big jump in gasoline prices, which saw prices top $3.20 per gallon. Excluding sales at gasoline stations, overall retail sales would still have been up 1.2 percent."
Um, 1.2 percent. Wow, detrend that for inflation in commodities pushing through and I bet you get near negative in real terms.
All in all, the data don't seem to justify Wall Street's good times are here response- but then Wall Street takes any excuse for a party;-}
Someday this war's gonna end...
but the stimulation seems to have run out.
Andrew,
Mainly, if someone is doing a 30 year mortgage and they don't expect prices to drop more than 20% where they want to buy, then yes.. there's no need to wait.. because interest rates would only need to rise to 7.66% from 5.5%
Though, I'm seeing average 30 year rates at 6.5%.. so that would mean rates would have to rise to over 8.8% to end up paying out the same overall.
Now, if you're dealing with 15 year rates.. the necessary interest rate increase needed to counteract a price drop is even more. They'd have to go from 6.5% to about 10.2% to compensate for a 20% drop in price.
Anyhoo, it's fun to run the numbers on these things. If you're in Southern California or South Florida.. I'd say wait out the price drops unless you expect mortgage rates to go above 10% in the next few years. (I am assuming a greater than 20% price drop from now)
Interest rates can do whatever they want.. so.. be careful.
PS My numbers can be a little fuzzy.. but the magnitudes of change should be about right.