Friday, December 26, 2008

Shop 'Til You Drop: The Retail Sales Picture

The headline retail sales spending number is down 8% in December according to MasterCard's Spending Pulse. However, taking the number apart, gives a slightly different story.

When gasoline sales (gasoline prices are down 40%, year-over-year) are excluded, the decline through Christmas Eve is only 4%. Since the price of oil is influenced, not only by retail gasoline demand, but also commercial and industrial use, this is a much more complicated number.

Now for the retail picture ex-gasoline. Bad weather on both coasts clearly had a negative impact on sales, but a more important factor is that between Thanksgiving and Christmas this year there were just 27 shopping days versus 32 in 2007, a difference of 16%. Unlike 2007, you have a very strong post-Christmas day shopping window Friday-Saturday-Sunday. Thus the number to watch is the number I posted earlier, January 8, when full December numbers are announced.
All this said, it was still a dismal Christmas season for retailers. The demand for cash is obviously very strong--people are very scared about the economy. However, this doesn't mean that the consumption-savings ratio is not readjusting towards consumption. If capital goods sales plummet faster than retail sales, and they are, the ratio is readjusting in favor of consumption. ABCT lives. What's going on is a downward readjustment of the price level at the same time as the consumption savings ratio is readjusted, with the added demand for cash acting as though the money supply is shrinking.

This is a once in a lifetime phenomena, equivalent to a Total Solar Eclipse. What makes this even more amazing is that you now also have the Fed aggressively printing money at record levels. It's almost as though the "Big One" earthquake hits Southern California on the same day as the Total Eclipse of the sun.

At some point the Fed money printing, what Bernanke is calling "quantitative (I'll say) money management", will overtake the desire to hold cash balances. Things will reverse and there will be a flight from cash. Thus, your money right now is worth more than it probably ever will again.

In other words, there are major discounts at most retailers---you will never see these type prices again, if Bernanke succeeds in his money printing--it's not a day to be reading blogs. It is the ultimate shop 'til you drop day. If there is something you need or want, today is the day to buy it. The price is likely never to be as low again.

Cash is king, probably only for about another week.



  1. Is the ABCT agnostic as to whether the Fed will succeed, or does it imply that Fed money-printing *must* shift the consumption-savings ratio back in favor of savings & therefore capital goods prices must go up again?

  2. Well, it's theoretically conceivable that everywhere the Fed pumps money it is held versus being spent or loaned out. Although, if enough money is pumped in this is highly unlikely, especially since Bernanke seems willing to pump money, as "a rescue", into every nook and cranny of the economy, someone will spend it. It may not be the capital goods sector (although this is very likely), but wherever it finds its way into the economy it will be inflationary.