Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

U.S. Economic Weakness Unmatched in 35 Years

Economics / Recession 2008 - 2010 Feb 17, 2009 - 06:02 AM GMT

By: John_Mauldin

Economics Diamond Rated - Best Financial Markets Analysis ArticleOne of the best gauges of an economy is tax collections. No one pays taxes unless they have to, so collections are a real-world, real-time analysis of the US economy. And the best source I know of for tracking taxes is The Liscio Report, by Philippa Dunne & Doug Henwood.

Tax collections are down. Philippa and Doug give us the actual numbers, which are not pretty. Bottom line? "What does this all mean? It suggests that the consumer retrenchment in this recession will be deep and long, and will probably continue into any recovery. The American consumer is no longer the world consumer of last resort, and that's an enormous change for both this country and the rest of the world to get used to."

You can learn more about the Liscio Report at Enjoy your week.

John Mauldin, Editor
Outside the Box

Holiday Blues: Weakness Unmatched In 35 Years

In January, 21% of the states in our survey met or exceeded their forecasted sales tax collections, up from 9% in December. Our index is based on states meeting their forecasts, not reporting strong or even positive over-the-year collections, so we need to point out that the entire improvement came from a large state doing slightly better than the stunning decline they had forecast. This decline was partially calendar related, but January 2008 was 7% below forecast, so they had a very low bar. In the words of our contact in that state: "Bad economy, good forecast." Had the revenue estimators in that state made a less dramatic forecast our survey would have slid to 6%, which we think is more in line with historical weakness reported for sales tax collections during the holiday season.

States reporting over-the-year growth fell to 3% from 15% in December. The average decline, weighted by state population fell from December's –6% to –10%. (More on this in a bit.) Forecasts were negative in all but two of the states that met their projected collections. The exceptions include a state that collects sales taxes on groceries and attributes their relative strength to the spike in food prices, and another that put through a rate increase, which accounts for all of the growth.

The energy-extraction states, which have held up the longest, are now weakening as well. To give you an idea of how powerful the surge in energy prices has been, our contact in one southern state told us that their Appalachian mine country is currently outperforming regions where manufacturing and research predominate.

Throughout the country, states are reporting historic weakness. One Midwestern state reported two months of double-digit declines, which just three months ago would have been "unthinkable." A small southern state reports that never before has an entire year fall below the prior year; they are currently down 5.7% for the year, and have to go back 35 years to find similar monthly weakness. Calling the holiday season one "large discretionary item," our contact in a large Midatlantic state reports that that item "imploded like never before" in his forty years of data. "Holiday receipts will make you say: OMG," he promised, even if you're too old to talk that way.

There is one piece of potentially encouraging news. A few contacts remarked that they do not expect the current rate of decline to continue into the spring as spending swings back toward day-to-day needs and away from the discretionary shopping of the holiday season. But, of course, there is no guarantee that consumer spirits will improve much with the job market in rapid decline, the markets in disarray, and our leaders struggling to come up with a viable plan to get the credit markets moving.

In addition to exceedingly weak sales receipts, our contacts are reporting record unemployment insurance payouts (in one state double what would formerly have been considered a "huge" month), plummeting corporate receipts, skyrocketing refunds, and evidence that withheld taxes may have been supported by employees opting out of retirement plan deductions, and even cashing out of 401K plans. (Hardship withdrawals trigger withheld taxes.)

Consumption: From Excess to Freefall
What's happened to consumption since the middle of 2008 is nothing short of stunning, both in speed and magnitude. Several examples will make this point.

Let's start with one of the mainstays of this report, sales taxes. Graphed below is the yearly change in state and local government (SLG) sales tax receipts adjusted for inflation from the national income accounts. (The price index is that for SLG purchases.)

The last entry on the graph is our projection, based on the results of our January survey -- a 10% nominal decline with a 2-point inflation adjustment, or a 12% estimated decline. (The estimate of 2% inflation is rough; it was about 3% in the fourth quarter, down from around 6% at midyear.) The actual result for the fourth quarter of 2008 was –6.3%, a little worse than the previous two quarters, which came in at –5.9%. That –6% neighborhood for late 2008 is the worst in the history of the series; its closest rival is the –5.1% hit during the sharp 1980 consumer recession, when Jimmy Carter got on TV and told people that it was their patriotic duty to stop using their credit cards -- which they actually did for a while, though not for long. This quarter should shape up to be a record-breaker.

OK, moving on to auto sales. Graphed below are monthly unit sales at a seasonally adjusted annual rate per 1,000 people. Adjusting for population really brings home the weakness. January's 9.5 million rate (for autos plus light trucks) is one of the lowest in history, but its earlier rivals were at times when the U.S. population was considerably lower than it is today.

January's rate translates into 31.1 units per 1,000 people, which is 3.5 standard deviations below the mean, and well below November 1970's 36.1, a dismal performance created not by economic weakness, but by a two-month strike at GM. It's also worse than the lowest levels of the 1973–75 and 1981–82 recessions (40.8 and 38.3 respectively). It comes after a 17-year period when there was basically no auto recession. But the contraction has hit suddenly and hard: sales were 50.3 per 1,000 in February 2008. The yearly drop-off is the worst since the numbers begin in 1968.

And now a macro measure: what Keynes called the marginal propensity to consume (MPC). The MPC is the share of after-tax income growth that is devoted to consumption. Between 1950 and 1990, the MPC was 89% (that is, the growth in consumption over those 40 years was equal to 89% of the growth in after-tax income). Americans started consuming more of their income growth in the 1990s, but really broke records in the 2000s.

Those points are illustrated by the graphs on below. The top graph shows the MPC computed over rolling one-year intervals. It's obviously very volatile, so we've added a trendline (as computed by a Hodrick–Prescott filter). In the 1980s, the HP trend broke above 100% for the first time, maxing out at 106% in 1986. It fell back to just below 100% as the decade turned, but began rising again in 1991. It stayed above 100% until mid-2006, and has now fallen very sharply to 75%. The actual MPC for the fourth quarter of 2008 was 2.4%, the lowest by far since 1950.

The graph on the bottom stretches the interval out to three years, to smooth out some of the volatility. That measure isn't at record lows, but its fall has been vertiginous: from 113% at the end of 2007 to 82% at the end of 2008. Measured in percentage terms, that's the sharpest fall over the last 58 years.

And the graph below shows the MPC by expansion, for the last 10 cycles. The MPC for the 2001–2007 expansion was 108%, a record by a comfortable margin. The #2 slot is occupied by the 1991–2001 expansion's 102%. Aside from the late 1950s expansion, nothing else came in above 100%.

What does this all mean? It suggests that the consumer retrenchment in this recession will be deep and long, and will probably continue into any recovery. The American consumer is no longer the world consumer of last resort, and that's an enormous change for both this country and the rest of the world to get used to.

Thursday's retail numbers
As we often point out, the retail sales series is extremely noisy, so noisy in fact that its month-to-month serial correlation is negative or non-existent. Stringing together the old and new series since 1967 gives you a serial correlation of –0.198 for the headline and –0.154 ex-auto; just looking at the new, post-1992 series, the coefficients are –0.151 and 0.032. This compares to the nonfarm payrolls correlation of +0.707.

This is by way of preface to saying that it's unusual to have several consecutive months of steep declines, as we have in recent months, but certainly not surprisingly in these unusual times (something to be thankful for in five or ten years, we hope).

Although our sales tax survey is abysmal, collections are lagged and we have seen some of that weakness in December's retail numbers. We suspect January sales fell -0.3% and –0.2% stripping out autos. The standard private surveys suggest that January wasn't as bad as December; the Goldman Sachs–ICSC weekly chain store numbers have stabilized (at low levels, suggesting necessities, not indulgences) in recent weeks. Our headline is far from consensus because we understand that weakness in unit auto sales was largely driven by fleet sales. The Census Bureau instructs retailers to include fleet sales in their responses, but since these sales usually bypass retail outfits they are probably more often missed than included.

--Philippa Dunne & Doug Henwood

By John Mauldin

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to:

To subscribe to John Mauldin's E-Letter please click here:

Copyright 2008 John Mauldin. All Rights Reserved
John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staff at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. Mauldin can be reached at 800-829-7273.


John Mauldin Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules