No Green Shoots In These Numbers

The green shoots are looking like they need water. Foreclosures surged in April, tax revenues cratered, California is close to going toes up and retail sales did an about face. Well recovery doesn’t always proceed in a straight line, does it.

Retail sales for April were down 0.4% from March and the figures for March were adjusted to a decline of 1.3% versus the previously reported 1.2%. April sales were 10.1% lower than last April and sales for the first four months of the year are down 10% from a year earlier.

The only months that sales rose since July of last year was January and February. After Christmas bargains and cashing in gift cards probably propelled sales in those months. The April results are particularly disappointing since sales were expected to be positively influenced by Easter shopping.

The decline in sales isn’t helping with inventory reductions. the inventory to sales ratio is still elevated at 1.44 to 1 versus 1.28 a year ago. Hope that inventory reductions would provide a base from which the economy could start growing are dimmer. Demand is simply not at a level to provide that boost, indeed there’s still a need for further inventory contraction.

Here are a couple of economists’ takes on the numbers from the WSJ economics blog:

» This is a disappointing report… We now have to expect flat consumption in April, which means there has been no net increase since January. In short, there is no momentum in spending; the freefall is over but shredded balance sheets and declining incomes mean a broadly flat trend is about the best we can expect. Greens shoots withering… –Ian Shepherdson, High Frequency Economics.

» This report reinforced our belief that much of the volatility in the retail sales results over the past few months was driven by problems with seasonal adjustment – January and February probably weren’t as strong as implied by the official stats and March and April probably weren’t as weak. The real truth is likely somewhere in between… Just to provide some sense of how important the seasonal adjustment factors are at this time of the year, clothing store sales were up 4.1% on an unadjusted basis but were reported down 0.5% in seasonally adjusted terms… We suspect that these swings may be related to seasonal adjustments but it also signals that the path to economic recovery could be a bumpy one. –David Greenlaw, Morgan Stanley.

Separately, Tim Geithner expressed some satisfaction with the pace of recovery in the financial sector:

“The financial system is starting to heal,” Treasury Secretary Timothy Geithner told community bankers meeting in Washington this morning. He cited five encouraging developments:

1) Spreads between yields on investment grade corporate bonds and Treasury debt have fallen about 2.1 percentage points and spreads on high yield corporate bonds are down about 8 full percentage points since the end of November.

2) Risk premiums in short-term inter-bank markets have fallen 2.75 percentage points over roughly the same period, and the cost of credit protection in credit default swap markets for the largest U.S. banks has fallen by about 1.50 percentage point since early April.

3) With the help of the Treasury-Fed lending facility, new securities issuance has started to revive. Spreads for AAA-rated asset-backed securities composed of card receivables ABS have fallen about 3 percentage points from their peak.

4) There has been more issuance of consumer-loan asset-backed securities in the past two months than in the preceding five months combined.

5) Rates on 30-year mortgages have dropped to an historic low of 4.8%, and refinancing has surged.

“These are all welcome signs, but the process of financial recovery and repair is going to take time,” Geithner cautioned.

All things considered, the news isn’t really encouraging. Though I will reluctantly stick to my prediction of a bounce back in the third and fourth quarters of some magnitude, I do so with a very queasy stomach. Whatever recovery there might be afoot, it’s pretty weak right now and I doubt it would take much to choke it off completely.

more: here (retail sales) and here (inventories).

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