JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

June 11, 2009

 __________

Annual Retail Sales Plunge Worst of Post-World War II Era

May "Core" Monthly Retail Sales Gained 0.15% versus 0.46% Total

Corrected Merchandise Trade Data Added $20 Billion to 2008 Deficit

Annual Surge in Gross Federal Debt Nears $2 Trillion
Spiking Treasury Yields

__________

 

PLEASE NOTE: The next planned Flash Update is for Wednesday, June 17th, after the release of the May CPI report. Any interim Flash Update or Alert would be published as dictated by developing economic or financial-market circumstances.  

– Best wishes to all, John Williams

 

The economy remains in a deep recession, as was confirmed by this morning’s (June 11th) retail sales report. Inflation, however, has started to resurface, as oil and related gasoline prices jump partially in response to a weaker dollar and ongoing dollar debasement by the Federal Reserve. These and other recently reported numbers suggest that the economic assumptions underlying the projections for the federal budget deficit and U.S. Treasury fundings are overly optimistic, with greater than expected budget deficits and Treasury fundings ahead. Accordingly, the broad outlook, as outlined in the last newsletter, remains intact. The weeks ahead will see the next newsletter, as well as an updated Hyperinflation Special Report. Odds continue to mount for an extremely serious inflation problem to unfold within the next year.

Retail Sales Annual Decline (3-Month Moving Average) Worst Ever. As reported by the Census Bureau, seasonally-adjusted May retail sales showed a statistically insignificant monthly increase of 0.46% (0.69% net of revisions) +/- 0.6% (95% confidence interval). Such followed a revised 0.24% (previously a 0.37%) monthly decline in April. On a year-to-year basis, May retail sales fell by 9.56%, versus a revised 10.00% (previously 10.10%) plunge in April. With monthly volatility smoothed by a three-month moving average, the nominal (not-adjusted for inflation) May year-to-year contraction of 9.68% was worst decline of post-World War II reporting.

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 0.15% (down by 0.01% net of revisions) in May, following a revised 0.21% (was 0.05%) decline in April. Those numbers contrasted with the official aggregate gain of 0.46% in May and decline of 0.24% in April. 

May’s accelerating pace of rising gasoline prices (gasoline station sales) again was muted partially by seasonal-factor adjustments. Such also should be seen in the pending May CPI-U release.  

Real Retail Sales.  Inflation- and seasonally-adjusted May retail sales may have declined on a monthly basis and certainly declined on an annual basis. The details will be published in the Flash Update following the June 17th release of the May CPI-U.

April Trade Balance Deteriorates Amidst Major Revisions. As reported by Bureau of Economic Analysis/Census Bureau, the seasonally-adjusted April trade deficit widened to $29.2 billion from a revised $28.5 (was $27.6 billion) in March. Such reflected some upturn in oil imports, as prices and volume showed minimal catch-up.

Revisions, redefinitions and methodological changes revamped the reported trade deficit back to the beginning of the decade, in advance of the looming, massive benchmark revision to the gross domestic product (GDP) and the national income accounts on July 31st. Implications for GDP revisions will be covered in a separate analysis (generally GDP growth of recent years should be weaker in revision).

Of particular interest, annual revisions recast "carryover" trade flows back into the months they actual took place, from the months in which they were reported. This is an issue I have been mentioning as a likely factor in the recent understatement of the deficit. The corrections restated the 2008 trade deficit from $681.1 billion to $695.9 billion, with the 2008 deficit in merchandise trade revising from $820.8 billion to $840.3 billion. The services sector largely is a guesstimated gimmick that usually overstates the continual surplus shown there, and that is used to offset the merchandise trade deficit to a certain extent.

May 31st Federal Debt Up $1.933 Trillion Year-to-Year. Rapidly mounting federal debt and prospects for an acceleration of same have contributed to increasing market reluctance to hold U.S. Treasuries and the U.S. Dollar. The resulting ongoing rise in long-term interest rates eventually will pull the Federal Reserve further in as the U.S. Treasury securities buyer of last resort, with an accelerating pace of Fed monetization of federal debt, despite Mr. Bernanke’s recent protestations to the contrary.   

Fiscal conditions continued deteriorating in May 2009, following collapsing revenues in April, the traditional big tax collection month. Annual change in revenues for May — traditionally the second softest revenue collection month of the year (after February) — were down by 5.7%, following the annual 34.1% year-to-year decline in April. For the 12 months through May 2009, revenues were down 13.6% from the prior 12-month period, thanks primarily to the intensifying effects of the recession. 

The twelve-month moving deficit through May 2009 was $1,127.3, versus $1,103.6 billion in April and $923.4 billion in March. Those numbers contrasted with twelve-month rolling deficits for May, April and March 2008, respectively, of $332.5 billion, $334.2 billion and $217.1 billion.

Accounting changes in April that reduced reporting of outlays for the government’s banking bailout program were reflected in the preceding data. 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 $11.322 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. Three major series are due for release on Tuesday, June 16th: Housing Starts. This series is highly volatile. Any monthly gain likely will be statistically insignificant, with the annual contraction holding deep in great-depression (down more than 25%) territory. Industrial Production. Expected to show a monthly decline (per Briefing.com), the annual contraction should fall deeper into depression (down more than 10%) territory. Producer Price Index. This highly volatile series should start to show significant upside pressures from rising oil prices.

Consumer Price Index. The May CPI-U is due for release on Wednesday, June 16th. Expectations likely will be for an increased, but still small, monthly gain in inflation, thanks to seasonal adjustments to gasoline prices. There is some upside reporting risk to likely expectations.

Annual inflation would increase or decrease in May 2009 reporting, dependent on the seasonally-adjusted monthly change, versus the 0.49% adjusted monthly increase seen in May 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 April’s annual inflation rate of negative 0.74%. With continued heavy upside pressure on oil and gasoline prices, annual CPI-U should be near its trough for the current cycle, although it likely will be June before the annual CPI starts moving higher, once again.

 

__________