The details of the most recent report on US retail sales show that consumer spending — the economy’s biggest driver — is not as resilient as it seems on the surface, according to David Rosenberg.
In an op-ed for Business Insider, the Gluskin Sheff chief economist laid out the most concerning areas.
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That’s me in the corner
That’s me in the spotlight
Losing my resilience
US retail sales edged up 0.3% in October, which didn’t even fully offset the decline in September. Interestingly, if the 3.8% plunge in unit auto sales reported by the dealers had been included in the Commerce Department report instead of the inflated 0.5% estimate, guess what? The headline would have cratered 0.6%. That would have caused some eyebrows to be raised, don’t you think? Maybe not.
Practically everyone seems to be in a state of denial these days because they are falling into this trap of extrapolating the message from the stock market to the real economy, even though the correlation of the two broke down years ago.
In real terms, sales volumes dropped 0.1% in October following a 0.4% falloff the prior month. We have not seen such back-to-back weakness since January. And the negative (-0.6% at an annual rate) ‘build in’ for Q4 has only been this way seven times this cycle and consumer spending growth weakened markedly on six occasions. What if the recession is starting now and the markets are as clued out today as they were when it also started at the tail end of the fourth quarter of 2007?
The bond-induced backup in mortgage rates has snuffed out any semblance of a recovery in housing because anything in the retail sales report that touches the residential real estate sector retreated in October:
Building materials slipped 0.5%, …read more
Source:: Business Insider