As Americans officially give thanks and then prepare to shop (or window shop), consider this: there hasn’t been a negative festive season for US retailers in 22 years. Figures from Citigroup suggest the worst year was 2007 when the rise in festive season sales in America’s shops was 0.7% from the day after Thanksgiving to the close of trade Christmas Eve.
Citigroup reckons sales will rise by up to 1% this year, which seems to be a bit of dreamy thinking, perhaps inspired by their bank’s “Christmas gift” this week from American taxpayers.
Despite this New York-centric optimism, it’s hard to see how US consumers will rouse their animal spirits and go shopping — not with house prices at four year lows, new and existing home sales at multi-year lows, retail sales slumping, car sales down 32% at multi-year lows and consumer confidence at near record lows. Not to mention soaring unemployment with another half a million people registering for their first unemployment benefit last week, the fourth week in a row the half-a-million level has been topped.
The severe impact of the credit crunch on US households and businesses was again evident overnight with the latest figures showing yet another slump in new home sales, consumer spending and orders for durable goods in October (AKA The Black Hole). Compared with Thanksgiving a year ago, 1.2 million more people are officially out of work, millions more have had their hours or pay cut; wages are up just 2% and inflation is still running at an annual 3.5% (but thankfully falling). The rest of the data added to the doom:
- Sales of newly built US single-family homes dropped last month to levels last seen more than 17 years ago, according to data from the US Commerce Department.
- Third quarter US growth contracted by the biggest amount since 2001 (0.5%, but figures for October suggest that growth this quarter will sink 4%-5% (annual rate), which would be the worst for a decade or more.)
- US consumer spending dropped a more-than-expected 1% in October. But it should have been greater after car sales plunged 32% in the month and retail sales slumped by a record 2.8%. The Commerce Department figures showed the sharp drop in spending came even as incomes rose 0.3% in the month.
- The Commerce Department reported that orders for big-ticket durable goods fell a huge 6.2% in October, without a strike or hurricane to blame, as there was for August’s big drop. That’s bad news for US manufacturing and for exports, the one part of the economy still showing life. The drop in sales of durable goods — such as planes, automobiles and refrigerators — was sharper than the 2.5% cut forecast by the market.
- A separate report said 529,000 new claims for unemployment benefits were made; down some 13,000 on the figure for the previous week, but the fourth week in a row that more than half a million claims have been made for the first time, a chilling statistic.
But it wasn’t just falling consumer spending that weakened the US economy in the September quarter. Business equipment spending fell a nasty 5.7% while investment in housing continued to fall, this time by 17.6%. The US Treasury Department and Federal Reserve announced a new $US200 billion program to make more money available for consumer loans, such as credit cards, auto loans and student borrowing. The Fed also upped the ante to support the frozen home loan market by announcing an additional $US600 billion to buy mortgage-backed securities in an effort to lower mortgage rates and support home purchases and prices. It seemed to work, because a day later mortgage rates fell sharply, down by at least 0.25% to well under 6%. The US 10 year bond yield dropped below 3%.
Next week we will get the November car sales figures and they won’t be pretty either. Figures will be released before the car industry returns to Washington on Monday with a begging bowl out, equipped with their turnaround plans. The November data will make an interesting backdrop to their pleas.