JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

July 14, 2009

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June Retail Sales Gain Due to Rising Inflation

"Core" Monthly Retail Sales Rose 0.26% versus Total 0.65%

PPI Inflation Surge Reflects More Than Oil Prices
Annual Change Reverses Direction of 10-Month Downtrend

Gross Federal Debt Up More Than $2 Trillion Year-to-Year

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PLEASE NOTE: The next planned Flash Update is tomorrow, Wednesday, July 15th, following the release of the June CPI and industrial production reports. The pending newsletter will follow within a day or so of the CPI report, fully updated for the latest economic releases.  

– Best wishes to all, John Williams

 June Retail Sales Gain Primarily Due to Inflation. As reported this morning (June 14th) by the Census Bureau, seasonally-adjusted June retail sales showed a borderline-statistically-significant monthly increase of 0.6% (0.65% to the second decimal point, 0.63% net of revisions) +/- 0.6% (95% confidence interval). Such followed a revised 0.47% (previously 0.46%) monthly gain in May. On a year-to-year basis, June retail sales fell by 8.99%, versus a revised 9.75% (previously 9.56%) plunge in May. With monthly volatility smoothed by a three-month moving average, the nominal (not-adjusted for inflation) June year-to-year contraction of 9.6% remained close to its nadir for post-World War II reporting. As noted below, with consensus expectations (Briefing.com) for roughly a 0.6% monthly gain in the June CPI-U, any reporting close to that would wipe out the bulk of the reported nominal monthly gain in retail sales, after adjustment for inflation.

Core Retail Sales.  Consistent with the Federal Reserve’s predilection for ignoring food and energy prices when "core" inflation is lower than full inflation, "core" retail sales — retail sales net of grocery store and gasoline station revenues — rose by 0.26% (0.23% net of revisions in June, following a revised 0.04% (previously 0.15%) increase in May. Those numbers contrasted with the official aggregate gain of 0.65% in June and a gain of 0.47% in May.  

Real Retail Sales.  Inflation- and seasonally-adjusted June retail sales likely were flat or possibly declined on a monthly basis, and they certainly declined on both a quarterly and annual basis. The details will be published in tomorrow’s Flash Update following release of the June CPI-U. Keep in mind that GDP growth is measured in real (inflation-adjusted) terms.

Producer Price Surge Included More Oil Price Rise. Consistent with upturns in the June purchasing managers surveys’ prices-paid indices, June producer prices rose sharply for the month, while a pattern of softening gains and deepening declines in annual price changes reversed for the first time since last July. As reported today (July 14th) by the Bureau of Labor Statistics (BLS), the regularly-volatile, seasonally-adjusted producer price index (PPI) rose in June by 1.8% (1.9% before seasonal adjustment), following a gain of 0.2% (0.5% before seasonal adjustment) in May. The so-called "core" inflation rate — net of food and energy costs — also spiked, up by 0.5% for the month, versus a 0.1% contraction in May. Year-to-year, what had been an intensifying contraction in PPI inflation began to reverse, with June prices down by 4.6% from the year before, versus an annual decline of 5.0% in May.

On a monthly basis, seasonally-adjusted June intermediate goods rose by 1.9% (up by 0.3% in May), with crude goods up by 4.6% (up by 3.6% in May). The decline in year-to-year inflation held even or narrowed slightly, with June intermediate goods down by 12.5% (down by 12.5% in May) and June crude goods down by 40.0% (down by 41.1% in May).

June 30th Federal Debt Up by $244 Billion for the Month, by $2.1 Trillion Year-to-Year. The pace of growth in both federal debt and the gimmicked federal deficit has continued to accelerate, with prospects for both remaining bleak. Rapidly increasing market reluctance to hold U.S. Treasuries eventually will pummel the U.S. dollar and force heavy Fed monetization (overt or covert) of the Treasury’s soaring obligations, along with dire consequences for broad money growth and domestic inflation. 

On the deficit front, the recession continued to take its toll on federal tax revenues, which were down by 17.1% in June 2009 versus June 2008, following a 5.7% annual contraction for May. For the nine months fiscal year-to-date, revenues for 2009 were down by 17.9% from the year before.

Understated by accounting gimmicks used to mute the impact of the banking bailout program, the twelve-month moving deficit through June 2009 was $1,255.2 billion, versus $1,127.3 billion in May and $1,103.6 billion in April. Those numbers contrasted with twelve-month rolling deficits for June, May and April 2008, respectively, of $309.2 billion, $332.5 billion and $334.2 billion.

Accounting changes introduced in April reduced the reporting of outlays for the government’s banking bailout program and continue on an ongoing basis. Before restatement for the new accounting gimmicks, April’s twelve-month moving deficit was $1,278.6 billion, instead of the now-estimated $1,103.6 billion. 

Viewing the change in the level of gross federal debt bypasses most of the regular reporting manipulations of the government’s financial results and provides a better indicator of actual net cash outlays by the federal government than is the official, gimmicked deficit reporting. Gross federal debt stood at $11.545 trillion as of June 30, 2009, up by $224 billion for the month, and up by $2,053 billion from June 2008, which in turn was up by $634 billion from June 2007. Gross federal debt stood at $11.322 trillion as of May 31, 2009, up by $83 billion for the month, and up by $1,933 billion from May 2008, which in turn was up by $560 billion from May 2007.

Week Ahead. Repeating the comments of the Flash Update of July 10th, following are the major economic releases still due this week:

Consumer Price Index: Due for release Wednesday (July 15th), the June CPI-U has a shot at seeing a flattening or minor uptick in the annual inflation rate. June’s monthly average gasoline price rose by 15.8% (per the Department of Energy), more than double the 7.6% monthly increase seen in June 2008. The energy-price-depressing seasonal adjustments of recent months washout in June and strongly reverse direction in July and August. Per Briefing.com, where consensus expectations are for about a 0.6% monthly CPI-U gain, there is some upside reporting risk to expectations.

Annual inflation would increase or decrease in June 2009 reporting, dependent on the seasonally-adjusted monthly change, versus the 0.93% adjusted monthly increase seen in June 2008.  I use the adjusted change here, since that is how consensus expectations are expressed. The difference in growth would directly add to or subtract from May’s annual inflation rate of negative 1.28%.

Industrial Production: Due for release Wednesday (July 15th), June industrial production should show a further monthly decline as well as a deepening annual downturn. The annual 13.4% decline in May was the deepest since war production was shut down at the end of World War II.

Housing Starts: Due for release Friday (July 17th), June housing starts are highly volatile on a month-to-month basis. Any such reported gain or loss likely will not be statistically significant, unless it exceeds plus or minus 20%. Annual decline, however, should remain close to its historic low.

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