Inexplicable Numbers

MarketWatch is reporting Retail sales show surprising strength with 1% gain

Sales of durable goods, gasoline lead broad-based rise.

The report was "inexplicable," said Ian Shepherdson, chief U.S. economist for High Frequency Economics, in an email. He noted that government data show a cumulative 3.1% rise in auto sales over the past three months, while the automakers report sales volumes are down 1.2%.

Another economist said the consumer is resilient. "Do not ever EVER count out the U.S. consumer," wrote Robert Brusca, chief economist for FAO Economics, in an email.

The differences between the automaker's numbers and the government's numbers are so staggering there simply must be questions. So before anyone gets hyped up about retail sales that are indeed "inexplicable", let’s see what Christmas sales look like.

After initial hype over Black Friday fizzled out, data has not exactly been robust. "Do not ever EVER count out the U.S. consumer". Hmmm. If that opinion was not nearly unanimous before, I bet it is now.

There are similar worries in the UK right now.

U.K. Inflation Rate Increases to Highest Since 1997

Consumer prices rose 2.7 percent from a year earlier, the most since the index was introduced in January 1997, after a 2.4 percent gain in October. Economists had expected an increase to 2.6 percent. Consumer prices rose 0.3 percent in the month, led by gains in utility bills and transport costs.

I find it amazing that people think that a blunt instrument like interest rates can cure rising energy prices or utility bills.

CPI is a lagging indicator.
Wages are a lagging indicator.
Energy demand is relatively inelastic.

The Fed being enormously wrong at major turns is legendary.
Here are some numbers that are very explicable.

Late Mortgage Payments Rose Sharply in Late Summer.

Late mortgage payments shot up in the third quarter as higher interest rates squeezed budgets and made it harder for homeowners -- especially those with weaker credit records -- to keep up with their monthly obligations.

The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Wednesday, reported that the percentage of mortgage payments that were 30 or more days past due for all loans tracked jumped to 4.67 percent in the July-to-September quarter.

Subprime borrowers had a delinquency rate of 12.56 percent in the third quarter, the highest in more than three years. The delinquency rate for these borrowers holding adjustable-rate mortgages was even higher -- at 13.22 percent in the third quarter, also the worst reading in more than three years.

For those financially strapped homeowners, the combination of slumping prices and rising interest rates can be painful. If the value of their homes drops, their loans could be worth more than their property. If their interest rates rise, their loans would become more expensive to pay off.

I think the question is not how fast they hike next year but when the downturn gets going how fast they start cutting.

What Year Is It?

That is the big question that seems to be on everyone's mind. I have heard all kinds of years (1994, 1984, 1999, 1987). Eric Janszen at ITULIP addresses the question in a very well written article Is it 1999 again? Yes and no.

On the other hand I am wondering if it is more like 1929 again pointing to Floors, Ceilings, Camels, Straw and Interview with Paul Kasriel. Just to be clear, Kasriel did not say it was 1929 again, he merely outlined the conditions in which deflation can happen in the U.S. and I believe those conditions are present now.

"What Year Is It?" will be the subject of a podcast discussion with Eric Janzen and myself, with Tom Jeffries moderating. Details are now in the works. I will post a link to it as soon as it is available. In the meantime, you may wish to read Eric's point of view in the above link.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/