The Worse Things Get, the Less Investors Notice – Ep. 337
Retail Sales Down Three Months in a Row
I've got so much to talk about today, it's hard to even figure out where to begin. So I'll start with some of the economic data that came out today, in particular, the February Retail Sales number. Remember last month we had a bad number, -.3, the second month in a row we had a decline in retail sales. The expectation was for a big rebound in February, +.4. Now, I suppose the good news, if you are looking for retail sales to pick up is that they revised the January number upward from -.3 to -.1. Still a drop, but not quite as big. But instead of getting a rebound, we got another drop! We got another .1% decline in February. That's a trifecta. Three months in a row of falling retail sales. That hasn't happened in 6 years. This is pretty rare.
Great Jobs, Lousy Sales
Why is this happening? Remember on Friday, we got this "beautiful", too-good-to-be-true, just what the doctor ordered jobs report that said about a million people got jobs. Why didn't any of those million people take their paychecks and spend them at a retailer? Trump is talking about all the great jobs and all the raises that people are getting and all the tax cuts, why are retail sales down for 3 months in a row?
Spike in Inventory Numbers
In fact, we also got some inventory numbers that came out that spiked up because of an 18-month slump in sales. So inventories are building because nobody is buying what's on the shelf. Well, that doesn't make sense if you believe the economy is great and we've got all these jobs. But if you're like me and you've been very skeptical of the economy being good, this is a validation, because Americans are broke.
Borrowing at Record Highs
This is despite the fact that borrowing is at a record high. Consumers are borrowing a lot of money, yet they're not spending it on retailers, what are they doing with the borrowed money? The government is borrowing a lot of money, we're running these huge deficits, yet it is not even affecting retail sales. That is really the goal, they want people to go out and shop, and it's not happening.
Atlanta Fed Again Lowers Q1 GDP Estimate
After the retail sales numbers came out, we got the Atlanta Fed updating their forecast for Q1 GDP. Remember, this is the forecast that was at 5.4% about 5 or 6 weeks ago. Of course, you remember on my podcast, as soon as that came out, I said, "This is crazy. There's no way we're going to be anywhere near that. They will be doing this limbo for weeks and months and they're going to be lowering the bar". On Friday, I reported on my podcast that they has lowered the bar to 2.5%, the lowest forecast since they started forecasting Q1 for 2018. And what I said on Friday was, "They aren't done going lower. there's room for this bar to go down". I said I thought that the GDP for Q1 would be under 2%.
Goldman Sachs Also Lowers Q1 GDP Forecast to 1.9%
Today, after these retail sales numbers, the Atlanta Fed went down to 1.9%. That is a decline of 65% in their forecast from 5 or 6 weeks ago. It's not just the Atlanta Fed. Goldman Sachs is now at 1.9%. And you know what? This is probably not the low water mark. I think there is at least a 50-50 shot that we end up with a zero handle on Q1 GDP.
Borrowing Q2 GDP Growth and Shoving it into Q1
Given how weak the data has been coming in, especially the big trade deficits. The only reason we might end with a 1 handle and not a zero handle is these rising inventories. In the short run, they give a boost to the GDP, but if inventories are rising because nobody is spending, what does that mean? That means that businesses are going to allow the inventories to wind down, they're not going to keep stocking up. So what we're doing is we're borrowing GDP growth from Q2 and we're shoving it into Q1.
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I've got so much to talk about today, it's hard to even figure out where to begin. So I'll start with some of the economic data that came out today, in particular, the February Retail Sales number. Remember last month we had a bad number, -.3, the second month in a row we had a decline in retail sales. The expectation was for a big rebound in February, +.4. Now, I suppose the good news, if you are looking for retail sales to pick up is that they revised the January number upward from -.3 to -.1. Still a drop, but not quite as big. But instead of getting a rebound, we got another drop! We got another .1% decline in February. That's a trifecta. Three months in a row of falling retail sales. That hasn't happened in 6 years. This is pretty rare.
Great Jobs, Lousy Sales
Why is this happening? Remember on Friday, we got this "beautiful", too-good-to-be-true, just what the doctor ordered jobs report that said about a million people got jobs. Why didn't any of those million people take their paychecks and spend them at a retailer? Trump is talking about all the great jobs and all the raises that people are getting and all the tax cuts, why are retail sales down for 3 months in a row?
Spike in Inventory Numbers
In fact, we also got some inventory numbers that came out that spiked up because of an 18-month slump in sales. So inventories are building because nobody is buying what's on the shelf. Well, that doesn't make sense if you believe the economy is great and we've got all these jobs. But if you're like me and you've been very skeptical of the economy being good, this is a validation, because Americans are broke.
Borrowing at Record Highs
This is despite the fact that borrowing is at a record high. Consumers are borrowing a lot of money, yet they're not spending it on retailers, what are they doing with the borrowed money? The government is borrowing a lot of money, we're running these huge deficits, yet it is not even affecting retail sales. That is really the goal, they want people to go out and shop, and it's not happening.
Atlanta Fed Again Lowers Q1 GDP Estimate
After the retail sales numbers came out, we got the Atlanta Fed updating their forecast for Q1 GDP. Remember, this is the forecast that was at 5.4% about 5 or 6 weeks ago. Of course, you remember on my podcast, as soon as that came out, I said, "This is crazy. There's no way we're going to be anywhere near that. They will be doing this limbo for weeks and months and they're going to be lowering the bar". On Friday, I reported on my podcast that they has lowered the bar to 2.5%, the lowest forecast since they started forecasting Q1 for 2018. And what I said on Friday was, "They aren't done going lower. there's room for this bar to go down". I said I thought that the GDP for Q1 would be under 2%.
Goldman Sachs Also Lowers Q1 GDP Forecast to 1.9%
Today, after these retail sales numbers, the Atlanta Fed went down to 1.9%. That is a decline of 65% in their forecast from 5 or 6 weeks ago. It's not just the Atlanta Fed. Goldman Sachs is now at 1.9%. And you know what? This is probably not the low water mark. I think there is at least a 50-50 shot that we end up with a zero handle on Q1 GDP.
Borrowing Q2 GDP Growth and Shoving it into Q1
Given how weak the data has been coming in, especially the big trade deficits. The only reason we might end with a 1 handle and not a zero handle is these rising inventories. In the short run, they give a boost to the GDP, but if inventories are rising because nobody is spending, what does that mean? That means that businesses are going to allow the inventories to wind down, they're not going to keep stocking up. So what we're doing is we're borrowing GDP growth from Q2 and we're shoving it into Q1.
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