Monday, April 16, 2018

Lotta cars bought in March, not a lot of other stuff

We’ve been looking for clues as to whether the Trump/GOP tax cuts were going to give a boost to consumer spending, now that withholding taxes have been reduced for 2 months. And if you buy that argument, the toplines of today’s retail sales report had to make you feel good.
U.S. retail sales rebounded in March after three straight monthly declines as households boosted purchases of motor vehicles and other big-ticket items, suggesting consumer spending was heading into the second quarter with some momentum….

The Commerce Department said on Monday retail sales increased 0.6 percent last month after an unrevised 0.1 percent dip in February. January data was revised to show sales falling 0.2 percent instead of the previously reported 0.1 percent drop.

Economists polled by Reuters had forecast retail sales rising 0.4 percent in March. Retail sales in March increased 4.5 percent from a year ago.
Sounds pretty good, until you dig into the actual retail sales report from the Census Bureau and realize that the increase was largely confined to one area of the economy.

Retail sales March 2018
Motor vehicles and parts dealers +2.0% (+$2.0 billion)
Everything else +0.2% (+$0.76 billion)

TOTAL CHANGE +0.6%, (+$2.76 billion)

That’s about all that was selling last month.

The big jump in auto sales was especially odd because autos had slipped badly leading up to that report, going down by 1.3% in February and only up 1.8% in the 12 months prior to March 2018. I’m going to need more than 1 positive month of car sales before I think the tax cuts changed anything for that sector.

And that 0.2% ex-auto figure is pretty soft, given that retail sales don’t take inflation into account. In addition, all retail sales (INCLUDING autos) were only up 0.2% total for the 1st 3 months of 2018. That’s a notable slowdown from 2017’s strong retail sales, where we saw a full-year increase of 5.1%. Those lower sales are a big reason why 1st Quarter GDP is likely to be hovering closer to 2%, which is well below the 3.3% that the Congressional Budget Office is planning on for this year.

So no, I’m not willing to say that the Piece of Shit tax bill is doing much to drive people to open their wallets more, at least not yet. And if it doesn’t happen soon, watch for the US budget deficit to open up even wider throughout the rest of 2018, because in a country that has 70% of its GDP tied to consumer spending, people need to buy stuff to keep economic expansions going.


  1. Car sales may have temporarily increased because interest rates and fuel costs have been on the rise and is it possible consumers might actually be struggling and being forced to purchase new vehicles to cut travel costs by switching to more efficient fuel or electric vehicles? With Toys R US, Bon Ton and several other retailers like JCP barely hanging on, it's easy to wonder if monthly job gains will turn to job losses. The main issue I'm seeing is interest rates and inflation rising, tax cuts benefitting the highest income earners who don't need the cash and having a minimal effect on the bottom 60%-70%. The Yield Curve has been dropping lower and lower over the past few days under 50 basis points making an inversion ever more likely and on top of all this, the threat of automation and artificial intelligence and Robots seems to constantly eliminate old jobs. Consumer, corporate, and government debt are at nearly record levels and pay increases are still barely above inflation. We also face the constant threat of a trade war and home and apartment prices that far exceed income growth. The government also continues to step up enforcement of monopolies and lack of competition across most industries. With so many employed either part time, in the gig economy with no benefits and so little job stability, let alone reasonable wages, for so many workers, I completely don't understand what is going to keep the economy from crashing. What real improvements are being made for the bottom 60%? Corporate stock buybacks send 1/3 the benefit to overseas investors,and how is that doing anything for people who live here? I wish I could think of even a few improvements that would meaningfully have a positive impact on the bottom 60%, but I can't think of a single thing that's been done to help them recently. So the real question is, what's actually stopping the economy at this point for outright crashing?! I'm actually amazed it hasn't crashed yet in all honesty! I'm guessing that adding jobs monthly up until now and possibly foreign investment but it does seem we are on the edge of a cliff and something small could cause a very quick and massive implosion. I'm guessing it wouldn't take much.

    1. I do see a lot of comparisons to 2006 these days, and not just because it looks like a good election year for Dems.

      I also don't see what keeps an economy moving when inflation-adjusted wage growth and consumer spending is barely above 0%. Seems like music will stops and the chairs start disappearing sooner than later.

      Oh, and PARAGRAPHS, PLEASE! Your points are good, but they look like a jumble when you write this way.

  2. Maybe car sales increased because potholes led to more broken axles.

    1. This comment has been removed by the author.

    2. I like your cynicism. We'll definitely see more of that in these parts in the coming weeks.