JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

July 15, 2008

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"Core" June Retail Sales Fell 0.7% versus 0.1% Reported Total Gain

Tax Rebate Benefit Evaporates

June PPI Gain of 1.8% Remained Well Shy of Reality

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PLEASE NOTE: The pending full newsletter will follow in due course after tomorrow’s Flash Update on the June CPI. All postings will be advised by e-mail.

– Best wishes to all, John Williams

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Market Tranquility Abates A Bit. The banking solvency crisis has been ongoing, but the markets are seeing it resurface in the midst of data releases that are reconfirming a rapidly intensifying inflationary recession. This is not happy circumstance for the U.S. equity, credit or dollar markets. As discussed in previous writings, the Fed and the Administration will do whatever is necessary to prevent a systemic collapse. The Fed has the will, the perceived mandate and the ability to create whatever money is needed to keep the system afloat. The cost to the system of this salvation remains much higher inflation  

All factors considered, the broad outlook remains the same: further intensification of the inflationary recession and a deepening systemic and banking solvency crisis. Near-term market recognition of same and risks for unstable market conditions are intensifying.

Over the shorter term, major market displacements likely will follow or be accompanied by intense, broad selling of the U.S. dollar. An increasing flight-to-safety outside of the U.S. dollar also should include flight-to-safety into gold. The gold and currency markets remain subject to extreme near-term volatility and both covert and overt central bank intervention. Over the longer term, U.S. equities, bonds and the greenback should suffer terribly, while gold and silver prices should boom. Full details will be covered in the pending newsletter.

Annual 9.2% PPI Still Understated. The seasonally-adjusted June producer price index (PPI) increased by 1.8% (1.6% unadjusted) for the month, up minimally from May’s 1.4% (1.6% unadjusted), and above consensus forecasts. Annual inflation for June jumped to 9.2% from May’s 7.2% rate, per the Bureau of Labor Statistics (BLS).

Unfortunately, both food and energy inflation continued to appear to be understated, meaningfully, while the monthly "core" inflation rate continued at the unbelievable monthly rate of 0.2%.

On a monthly basis, seasonally-adjusted June intermediate goods rose by 2.1% (2.9% May), crude goods gained 3.7% (6.7% May). Year-to-year inflation, remained hairy, but still shy of a real world that has seen a doubling in oil prices year-to-year, with June intermediate goods up by 14.5% (12.6% May) and with crude goods up by 45.5% (41.5% May). Crude energy materials rose by a modest 72.1%.

Retail Sales Tumble Net of Inflation. The Census Bureau reported seasonally-adjusted June retail sales rose by 0.07% (down 0.32% net of revisions) +/- 0.6% (95% confidence interval), following a revised 0.83% (previously 1.02%) gain in May. On a year-to-year basis, June retail sales rose by 3.04%, following a revised May gain of 2.06% (previously) 2.45%. The real (inflation-adjusted) annual and monthly changes should be significantly in the negative column, after tomorrow’s CPI report. With the revisions and June’s reporting, much of the short-lived gain in activity generated by the tax rebates has disappeared.

Core Retail Sales. Consistent with the Federal Reserve’s predilection for ignoring food and energy prices, "core" retail sales — retail sales net of grocery store and gasoline station revenues — fell by 0.68% (down 1.23% net of revisions) in June versus a revised 0.78% (was 0.86%) gain in May, against the official aggregate gain of 0.07% in June and the revised 0.83% in May. On an annual basis, June "core" retail sales fell by 0.05% versus a revised May contraction of 0.09% (previously a 0.39% gain).

Given anecdotal evidence of automobile driving patterns changing in the wake of soaring gasoline prices, the drop in real retail sales should exceed that of the core number, suggesting the possibility of a higher-than-consensus gain in the upcoming June CPI report.

Tomorrow’s CPI. Elements in both the PPI and retail sales reports would tend to favor something above consensus forecasts of about a 0.7% gain for tomorrow’s (July 16th) CPI report. As previously discussed, annual CPI inflation is due for a surge.

These reports will be discussed in greater detail in the pending newsletter.