Retail sales indicate rising inflation not rising consumption

[EJ]

August retail sales up 0.4 pct., best in 5 months
Sept. 14, 2010

WASHINGTON (AP) -- Retail sales rose in August by the largest amount in five months, adding to evidence that a late spring economic swoon was temporary and not the start of another recession.

Retail sales increased 0.4 percent last month, the Commerce Department said Tuesday. It was the second straight monthly increase and the biggest gain since March.

Excluding a decline in autos, retail sales increased 0.6 percent. That followed two relatively flat months and a sharp drop in May.

AntiSpin: Today's retail sales numbers are misleading. Consumers are not buying more stuff, they are paying more for it. Consumer price inflation is rising. That's why gold prices spiked from $1250 to $1270 on today's retail sales news.

Background: Retail sales data are not inflation-adjusted. August auto sales volume fell along with other big-ticket items, such as appliances and furniture. Real (inflation adjusted) retail sales never climbs when auto sales volumes are falling. Unit costs are rising.

Why: August retail sales growth came from department stores, clothing stores and sporting goods outlets that survived the retail crash of 2008 and 2009. They have regained pricing power and are starting to pass on higher finished goods import costs due to the weak dollar onto consumers. We forecast this development in Dec. 2008 to start by mid 2010. It is arriving on schedule.

Policy Implications: The Fed's bluff to maintain near zero interest rates for the duration because "inflation is tame" will soon be called by the bond markets. The Fed will have to begin to talk about raising interest rates as inflation evidence mounts. But with the housing market turning down again, a rate hike to choke off inflation in the Productive Economy will promote deeper asset price deflation and re-crash the FIRE Economy, possibly leading to a second credit crisis.

Investor Implications: Retail stocks may climb with higher profits and sales. However, the stock market overall will decline in response to the Fed's conundrum: how to continue to manage asset price deflation in the FIRE Economy without producing inflation in the Productive Economy. Perversely, even talk of a small rise in interest rates could produce a panic in the bond market. Conversely, if evidence of rising inflation continues to mount without a Fed response, the market will bid up yields anyway.

Evidence:

Auto unit sales volume have stagnated at 1983 levels when the US economy was three times smaller.

Real retail sales is declining as inflation rises. Real retail sales does not rise when auto unit sales volumes are flat or falling.

The most likely explanation for this development is inflation, and the rising gold price confirms it.


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[goadam1]

Re: Retail sales indicate rising inflation not rising consumption

Well done again, Mr EJ.

[goadam1]

Re: Retail sales indicate rising inflation not rising consumption

Anyone around here care to make a call on Silver in light of this evidence?

[EJ]

Re: Retail sales indicate rising inflation not rising consumption

Well done again, Mr EJ.

Thanks. This will be the new format for the new site when it's launched next week. Short, concise daily updates and long, detailed bi-monthly analysis in the Select area along with any changes to the TPCE Portfolio positions with comments on them.

[BK]

Re: Retail sales indicate rising inflation not rising consumption

EJ,
Great piece as usual. The regular folks are still listening to the Government's chants of Deflation. Our favorite 'Pick Your own Apple' joint raised the price per pound of Apples from $0.75 to $0.80. Farmers get Inflation because all of their Input costs are rising and especially Property taxes.

We recently purchased a Hybrid (the Nissan Altima) and most people still think hybrids are a quaint idea (versus a necessity ).

Ever where I look I see inflating prices or decreasing serving size- at least for things that don't need financing.

[karim0028]

Re: Retail sales indicate rising inflation not rising consumption

Anyone around here care to make a call on Silver in light of this evidence?

take a look at CDE (its in a big upward wedge), not making any projections, but silver is moving very well and so are its stocks.... For the most part silver stocks seem to be just waking up... Its almost a no brainer to say that gold isnt going to hit 3-5k with silver at $20.00.... Like anything with stocks, this is essentially speculation and number one rule is don't lose money...

[karim0028]

Re: Retail sales indicate rising inflation not rising consumption

Yes, Awesome job EJ, liking this quick feedback!

[doom&gloom]

Re: Retail sales indicate rising inflation not rising consumption

The ongoing matra for the future = "Deflation in what you own, inflation in what you need". I don;t expect that to change for some time.

[karim0028]

Re: Retail sales indicate rising inflation not rising consumption

The ongoing matra for the future = "Deflation in what you own, inflation in what you need". I don;t expect that to change for some time.

I really feel bad for the older folks, this is going to be very bad for them... Work your entire life, save, buy a house, put it all in stocks and then lose everything when the first stock crash happens, double down and put more into your house, then lose half of that when the housing bubble crashes and then the final salvo say "screw it all i'm going into the safest investment, im buying bonds!" and then have the dollar lose half its value along with a bond crash......

This is like a bad joke, if it weren't so real, you would think this was a script out of a movie....

[jpatter666]

Re: Retail sales indicate rising inflation not rising consumption

Thanks. This will be the new format for the new site when it's launched next week. Short, concise daily updates and long, detailed bi-monthly analysis in the Select area along with any changes to the TPCE Portfolio positions with comments on them.

Oooooo....very nice. And good timing since we seem to be tap-dancing on land-mines again (reference John Williams's ZeroHedge link)\

http://www.zerohedge.com/article/joh...nces-land-mine

[goadam1]

Re: Retail sales indicate rising inflation not rising consumption

That is exactly what I want as a premium subscriber.

Thanks Again

[goadam1]

Re: Retail sales indicate rising inflation not rising consumption

Why: August retail sales growth came from department stores, clothing stores and sporting goods outlets that survived the retail crash of 2008 and 2009. They have regained pricing power and are starting to pass on higher finished goods import costs due to the weak dollar onto consumers. We forecast this development in Dec. 2008 to start by mid 2010. It is arriving on schedule.

Doesn't this beg the question: why not have gone after the larger retailers who could survive the process? Shopping isn't going to vanish altogether.

[EricPhan]

Re: Retail sales indicate rising inflation not rising consumption

Thanks. This will be the new format for the new site when it's launched next week. Short, concise daily updates and long, detailed bi-monthly analysis in the Select area along with any changes to the TPCE Portfolio positions with comments on them.

That sounds wonderful!

[dbarberic]

Re: Retail sales indicate rising inflation not rising consumption

Thanks. This will be the new format for the new site when it's launched next week. Short, concise daily updates and long, detailed bi-monthly analysis in the Select area along with any changes to the TPCE Portfolio positions with comments on them.

I like it. iTulip in executive summary form.

[doharra]

Re: Retail sales indicate rising inflation not rising consumption

I was curious just what you'd find by comparing the government’s official CPI for July with the government’s official retail sales for July.

In the third sentence of today’s announcement about August retail sales, we get July’s revised estimate.

The June to July 2010 percent change was revised from +0.4 percent (±0.5%)* to +0.3 percent (±0.2%).

When you go back to the official CPI report issued on Aug. 13, you find an uncanny correlation — completely in line with EJ’s commentary about the August figures and inflation.

The Consumer Price Index for All Urban Consumers (CPI-U) increased
0.3 percent in July on a seasonally adjusted basis, the U.S. Bureau
of Labor Statistics reported today.

At the risk of mixing apples with apricots here, it sure seems to show remarkable symmetry in the official data. July retail sales go up .3 percent while July CPI shows a .3 percent decline in the value of those sales. And it’s right there in the government's not-adjusted-for-lies press releases, where any math chump with an English degree (like myself) can find them....

I wonder what we’ll see when the August CPI figures come on on Friday? Will they cancel this latest uptick in reported retail sales with as much precision?