Two weeks ago, I noted that the Great Recession was over, but we still had to deal with the ongoing “ordinary” recession.

Today’s data confirms that view.

Initial Claims were much weaker than the green shoots crowd expected; Continuing Claims are falling as exhaustees drop off the rolls of Unemployment Insurance (see chart below). And the 90% of the labor pool that does have jobs have seen no gains in income for over a decade now. In Real Inflation adjusted terms, these consumers are worse off — much worse off the lower you go down the pay scale — then they were 10 years ago.

No job, no Unemployment  insurance, no money — what might that do to spending?

Take a wild guess.

Despite the government “Cash for Clunkers”  billion dollar giveaway, Retail Sales still fell. Consensus was expected to be 0.8%, and instead we saw a negative 0.1%. Ex-Autos it Retail Sales fell 0.6%. (see chart below)

Consumers continue to save versus spend. As a group, they are shell shocked from the twin asset collapses (Housing and Equity). Keep in mind that typical middle class family has much more of their net worth tied up in their home than in their stock portfolios/401ks.

Those folks looking for a fast 2001 snapback in Retail Sales are going to be sorely disappointed.

>

Long Term Unemployed Continues to Rise
click for larger chart
unemployedover26weeksjuly
chart courtesy of Calculated Risk

Retail Sales Remain Punk
click for larger chart
retailaugreal
chart courtesy of Calculated Risk

>

Previously:
The Great Recession is Over! Long Live the Ordinary Recession… (July 31st, 2009)    http://www.ritholtz.com/blog/2009/07/great-recession-over-long-live-ordinary-recession/

Sources:
ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES July 2009
The U.S. Census Bureau, August 13, 2009

http://www.census.gov/retail/marts/www/marts_current.pdf

UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT
EMPLOYMENT AND TRAINING ADMINISTRATION
U.S. Department of Labor, August 13, 2009

http://www.workforcesecurity.doleta.gov/press/2009/081309.asp

Category: Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

168 Responses to “Green Shoots? Not Retail Sales or Unemployment Claims”

  1. Make that 3 Billion Dollars for Cahs for Clunkers — with $1B down, and $2B to go . . .

  2. leftback says:

    Good point, Barry. We aren’t likely to see a 50% short covering rally in Inland Empire ranch homes any time soon.
    SELL THE SPOOS, JAMIE. BUY THE TWOS! DUCK AND DIVE, LLOYD. BUY THE FIVE!

  3. manhattanguy says:

    Green shoots my a$$

    I think we are seeing a nice distribution in the markets.

  4. The Curmudgeon says:

    Household wealth, equities and housing, is swinging upward, or in the case of housing, is not declining like it was and still should be. Ignore all the nonsense that it’s being fueled by massive infusions of newly-minted greenbacks that represent no new value, but rather just hope against hope that an inflationary delusion will somehow morph into real growth where none would otherwise occur. Delusion is the new reality. Perception, as mandated by government fiat, trumps everything. A man sees what he wants to see and hears what he wants to hear.

    Happy days are here again. Buy now or be forever priced out. Don’t miss the next leg up in the markets. DOW 15,000 by Christmas.

  5. Mannwich says:

    Retail = Not so small and very noticeable Canary in the Coalmine.

  6. HCF says:

    I wait with baited breath to see how Kudlow and Kneale will spin this data today…

    Maybe they’ll say that job losses are backwards looking? Maybe we’re in a new paradigm and retail sales don’t matter anymore?

    HCF

  7. dead hobo says:

    Maybe GS bonus babies will save the day. Using rough math, it looks like they will get about 5% of the $300b of the cash the Fed printed over the last year and directly injected into the economy to stabilize the financial markets.

  8. dead hobo says:

    How I figured 5% of $300b:

    To repeat: Over the life of the Fed stabilization program, GS will earn about $30b in trading profits. 50% will paid out as compensation. Do the math.

  9. Mannwich says:

    On a related green shoots note – Bob Toll at Toll Brothers wants a “Cash for Clunkers” program for housing and said as much in their recent conference call. Did I call that one (“Cash for Condos”) a few days ago or what? Free money for everyone…….but due to be repaid with interest later on. Just the ticket to get things going again. Take the last bubble and X it by 1,000 in scope/magnitude!! Happy days are here again in the ‘ol USA.

  10. DeDude says:

    So Obama turned the great ressesion into a great depression with his stimulus package, and now he has turned the great ressesion into a regular ressesion with his cash-for-clunkers. Someone has to stop this guy or we will have bears jumping out of windovs all over Wall Street :-)

  11. franklin411 says:

    We’ll see, but frankly I was in the market to add to my wardrobe last week (thought I should get some new shirts for teaching…think a slightly dressier form of casual). I wanted to spend about $150. I ended up not spending a dime. Why?

    Because the stores wouldn’t let me!

    I went to Gap, and it was the same story at other stores I checked: nothing was on sale (and I never have bought a shirt at full price…ever), clearance sections had shrunk to 75% of what I’m used to (Gap usually has 6-8″ of rack space on clearance…this time they had 2″), and even the full priced inventory was slashed to the bone. They had 1 polo shirt style, 1 collared shirt style, and 1 t-shirt style…and that was it.

    This could just be my area or just bad management at the Gap, but I checked the website to see if I could order online instead and it was the same story.

  12. HCF says:

    @ Mannwich:

    What’s next, cash for clunker stocks? Can we all get $100/share for our Nortel stock? This is really getting out of control. What the govt. is doing is the equivalent of hiring one guy to dig a ditch and another guy to fill the ditch in.

    We built too many new homes in the last boom… Now, they NEED to correct. Not too hard to understand for us, so why is it so hard for policymakers to understand?

    HCF

  13. Mannwich says:

    @franklin411: I wonder why that is? If nobody is buying, why would retailers pack their shelves with stuff they’re gonna either get stuck keeping or selling for a loss? This will become more common as the Great Recession drags on and on and on.

  14. I-Man says:

    When I saw the number flash by this AM… ex-autos… it dawned on me that maybe things arent as good as they have been portrayed in the MSM… ;)

    (Just having some fun with yall, in exchange for the fun I just had catching up on where the open thread wandered last night… but who IS cnbcsucks these days???)

    What strikes me most about the juice that retail sales got from this foolish cash for clunkers nonsense, is just who did it help anyway? Likely folks who already had some dough lying around. And further…

    Didnt this program only “rob” car sales from the future? Legitimate auto sales that would have arisen and helped us in a “real” recovery? Not some chickenshit engineered one?

    Gets right back to the theme that keeps coming up, and I dont know who said it first… “mortgaging the future.” Sounds about right.

    Rant time:

    Why dont these asshats get it?! Put people to work, and they will buy cars, and other shit. Make good on your promises to unleash large infrastructure projects and put boots on feet and shovels in hands… then you’ll see the retail sales. Its just mind boggling, the ineptitude. But quit wasting money on bullshit “stimulus” that doesnt stimulate.

  15. Mannwich says:

    @DeDude: Be careful assuming causation when there may only be correlation.

  16. HCF says:

    @franklin:

    Do not mistake good inventory management and/or slashing costs with robust growth. There’s a good reason that most companies beat on profit expectations, but missed on revenue. Not saying it won’t come back eventually, but I’m not convinced that retail recovery is happening right now…

    HCF

  17. dead hobo says:

    franklin411 Says:
    August 13th, 2009 at 10:18 am

    Because the stores wouldn’t let me!

    reply:
    ——–
    Agreed that only fools pay retail unless they absolutely have to. What you saw is common. The sales are gone now. Low ‘everyday pricing’ is all they have left. If no retail recovery soon, Marshalls and TJMaxx will restock from major retailer Chapter 7 events. Wait for that.

  18. franklin411 says:

    @HCF and Mannwich
    My first thought was “Back to School,” because this is a very wealthy area. But the K-12 population is pretty small. The big fish would be my university, but the undergrads won’t be back till the end of September.

    I agree that it probably says a lot about store management instead of robust growth. I actually asked the manager why there was no inventory, and she said something about how the CEO had just visited them and they were changing the store (at least, that was what I think she said…she didn’t make much sense). However, it was the same story at Express and Banana Republic (home of the $125 linen shirt “on sale” for $75).

    It does say something about demand, though. I have a job, I need clothes, and I have money budgeted for this. But they won’t let me!

  19. dead hobo says:

    per yahoo: Business inventories down 1.1% and worse than expectations. Prior month revised down significantly.

  20. hopeImwrong says:

    f411 and mannwich – the retailers are way ahead of the MSM in recognizing the ramifications of the economic reality here. They are already on the path of protecting their business against vastly reduced consumer spending. Fewer stores, less inventory, less square footage of floor space, narrow selection of merchandise, and merchandise priced for profits. The fire sale days (unless sponsored by DC) are coming to and end soon. This is the worm turning. This is the beginning signs of the future inflation. Retail will survive only by very aggressive downsizing. Eventually their margins will stabilize, but at a much lower revenue level.

    Don’t get me wrong, we are still in a deflationary environment, but watch there signs carefully.

  21. Mannwich says:

    @f411: This lack of supply will eventually cause inflation (not yet though) when demand comes back. Who knows when that will be though?

  22. Paul S says:

    “… consumers are worse off then (sic) they were 10 years ago.”

    If this is true then we need to eliminate all sales taxes and pile all revenue into income taxes.
    C’mon guys- face facts- the party’s over. Raise the income and capitol gains back to reasonable levels. The little people are dying- and I don’t mean they are lacking health care.

  23. The Curmudgeon says:

    “Don’t get me wrong, we are still in a deflationary environment, but watch there signs carefully”

    Forestalling deflation, i.e., preventing or slowing otherwise naturally occuring price declines by massive money printing is inflation. And it’s happening everywhere. Automobiles (you think the dealer’s reduce their prices by $4,500 when taking a clunker?) Assets (stocks, bonds, commodities) and most especially, real estate (ex-a few basket case markets in the bad four states, prices have stabilized or are even climbing, no matter that virtually all markets are massively over-built).

    I keep saying it, but all that monkeying with the money can do is get you monkeyed money. It just screws up the accounting. It changes nothing in the long run, and the long run looks like economic stasis or decline.

  24. dead hobo says:

    Let’s see: If business inventory is down a lot and retail sales are down a lot and pricing is stable with fewer discounts then what could this mean? Perhaps it’s a new equilibrium where the economy is downsizing, starting with the consumer and inventories are keeping pace. It also suggests no restocking cycle at any time soon since there is no indication anyone will buy what is produced … it might require a sale at a loss.

    To me, this looks like the first shoots in a permanently downsized economy. Or, to put it another way, the most optimistic case is a ‘L’ shaped recovery. Or something that will look ‘L’ shaped after is stops falling.

  25. Onlooker from Troy says:

    dead hobo

    Yep, trickle down baby. Just get the money in the hands of those who are already rich and they’ll spend it on the little people. Have to keep all those housekeepers and dog walkers employed, don’t ya know.

  26. I-Man says:

    @ Paul S:

    Assume I am ignorant… how does

    “Raise the income and cap gains back to reasonable levels” help the “little people” at all?

  27. DeDude says:

    Mannwich;

    This is not biomedical research where you can control all variables or conduct double blind placebo controlled trials. So I am comfortable assuming causation in the absence of any other credible model to explain a change. Correlation and a highly credible model to explain causation is about as good as it ever gets in the world of economy.

  28. Mannwich says:

    @dead hobo: I think you nailed it. This is probably as good as it gets economic activity-wise for quite a few years to come. The good news is we’ve stopped falling off a cliff. The bad news is we’ve hit the ground and likely will flat-line there for a long time absent any major groundbreaking invention here in the U.S. that changes the game.

  29. Mannwich says:

    @DeDude: You’re comfortable with assuming that, which I believe is an enormous stretch. That’s fine. I’m not. This is just the kind of thing the Bush admin did (lowering taxes always spurs growth) and the liberals said that “correlation does not imply causation”, but I guess it’s different when your/our guy is in the WH, right?

  30. call me ahab says:

    the stock market cracks me up- it is like Michael Myers from the movie Halloween- you know where he gets shot then stabbed then falls out a window, etc, etc, etc-

    but when you look over your shoulder- he is on his feet again

  31. Onlooker from Troy says:

    ahab

    LOL! That’s the perfect metaphor for the market lately. I still don’t know if it’s just mass psychological delusion or indeed the “money printing” that’s having this effect. Probably a combo of the two, with some desperation thrown in.

  32. Mortimus says:

    Of course by the end of the movie he’s got his head lopped off chopped up in a meat grinder

    Hmmm….I dig

  33. Andy T says:

    Geez Barry, more unpatriotic talk.

    You obviously don’t love this country enough. Didn’t you get the stories about “every economist agrees the Recession is over.” We’ve turned the corner, damnit! Everyone says so, and they’ve repeated it often, therefore it must be true! Now get with the program comrade! Get out there and start buying stocks like you love this country again.

    [Feeling a bit snarky this a.m.]

  34. dead hobo says:

    Mannwich Says:
    August 13th, 2009 at 10:52 am

    The bad news is we’ve hit the ground and likely will flat-line there for a long time absent any major groundbreaking invention here in the U.S. that changes the game.

    reply:
    ——–
    Not to be critical, but you just described the top of the range I suggested. There is no evidence the economy has stopped falling, it’s only falling a lot slower. You’re such an optimist!

  35. call me ahab says:

    mannwich-

    i slightly refined your idea-

    the good news is- America is going to make it

    the bad news is- it’s going to suck

  36. IdiotInvestor2 says:

    Should we declare retail sales as lagging indicator ?

    I think the only forward looking indicator is the stock market. Since, it is going up, suggesting good things to come ahead, we should buy more stocks.

  37. beaufou says:

    I’d like to know who estimates what.
    Let’s see…more than 50% of people in debt before the crisis started, 6 to 8 million more unemployed with thousands more in the near future.
    Retail sales are not picking up, well, what a surprise.

  38. torrie-amos says:

    Very nice charts, Barry. Now we know where the stiumuls dollar figure comes from. One would guess every country in the world has similar charts. I guess we also know why there is talk of more stimulus. “Countries of the world, Reflate!” I’m just upset I did not understand the memo. Always on the outside looking in.

  39. hopeImwrong says:

    long srs with no stops since yesterday ($12.13). Could be crazy. This just feels like, well, like the other bubbles felt at about the middle of the move.

    I can’t believe that came out so easily.

  40. I-Man says:

    @ hope:

    You sound like a sinner in confession… :)

  41. hopeImwrong says:

    By the time I figure out how to go long a bubble, and stay long to the end, the bubble game will be over.

  42. hopeImwrong says:

    Anyone have thoughts on CRE surviving by sticking it to the banks? I looks like the CRE companies are able to selectively default on the worst properties in their portfolios in order to try to stay solvent.

  43. [...] change in nominal and …Calculated Risk – http://www.calculatedriskblog.com/|||Green Shoots? Not Retail Sales or Unemployment Claims | The Big …Two weeks ago, I noted that the Great Recession was over, but we still had to deal with the ongoing [...]

  44. Mannwich says:

    @IdiotInvestor2: My wife works in retail and she is not seeing an uptick in sales at all. None. Zero. Nada.

  45. constantnormal says:

    @hopeImwrong 12:25 am

    A question — why SRS? Why not TZA, given the likelihood that the back-to-school sales will be inadequate generators of revenue, both from a lack of inventory and a lack of customers perspective? I would think that the small retailers would get hammered the most, and while Uncle Sam has the housing industry’s back, so far as I can see, there is an actual free market operating in the small stocks. Those small retailers are out there on the front lines, and are getting slaughtered.

    full disclosure — I had some buy orders to pick up TZA @ 14.50 and they tripped in yesterday’s Fed spasm — a lot sooner than I expected them to. So I’m not exactly unbiased in this like of thinking. (I also have my sell orders placed, and would be happy to be taken out before I have to decide how long I’m going to suffer the death of a thousand end-of-day realignment)

  46. hopeImwrong says:

    @const.

    I’m not comfortable with 3x etfs with overnight risk. SRS might not be the best here. It’s had some big swings lately. Looks like my timing is off on this one, and stops are going in at this time.

  47. constantnormal says:

    @IdiotInvestor2 11:08 am

    What a serendipitous coincidence! Here you are wanting to buy stocks to take advantage of your perceived future of rising share prices, and here I am, with stocks to sell! The prices might be a little dear, as my inventories are a tad depleted, but I’m sure we can strike a deal.

    Kinda like Tim Geithner trying to sell his Westchester house that he paid $1.6M for, at a bargain price of a little less than $1.7M …

  48. Bruce N Tennessee says:

    http://briefing.com/Investor/Public/Calendars/EconomicReleases/claims.htm

    Key Factors

    ‘There is cold comfort in the drop in continuing claims since it most likely reflects people losing benefits. To be sure, there isn’t much hiring happening.

    Although the trend in initial claims has been better of late, a reading north of 500,000 at this point is still downright bad and still well above prior recession levels when the 4-week average for claims was closer to the 400,000-450,000 range.’

    BINGO!…there is a reason they call this the worst since the GD….take a look at the claims of the last 6 weeks or so…that is why the decrease of the UR to 9.4% was such as sham…not even Einstein could explain losing another 275k jobs and decreasing the UR to 9.4 from 9.5….

    Prior recession levels were 100-150k less than where we are now…

    just go easy on the greenishness, please…

  49. jc says:

    Hobo,
    to put it another way, the most optimistic case is a ‘L’ shaped recovery. Or something that will look ‘L’ shaped after is stops falling.

    we need a new letter or accent mark, like the letter “L” but pointing slightly downward to describe this jobless new economy, we can borrow from the French and call it an accent grave but pronounced the americun way

  50. ben22 says:

    think the only forward looking indicator is the stock market. Since, it is going up, suggesting good things to come ahead, we should buy more stocks.

    Your handle fits this statment, except it should be inwestor.

    sorry

  51. Mortimus says:

    How about the “lightning bolt” recovery? Seems more honest than “W”

  52. TraderMark says:

    Bottom 80% of Americans in doldrums, have been and will be for a long time. They have been quietly suffering for a decade, hidden by house ATM but now bared.

    They will continue to be supported by government handouts (now 1 in every 6 dollars in income is from government for Americans) but that just continues to hide the reality of what is happening to the lower tranches of society

    middle class being carved out

    http://www.fundmymutualfund.com/2007/12/do-bottom-80-of-americans-stand-chance.html

  53. jc says:

    OK, so a lot of corporations exceeded drastically reduced analysts forecasts by cost cutting to cope with plummeting top line revs, but they ain’t hiring back and we’re still in an unemployment, real estate, retail death spiral. The only thing that could bust us out is consumer spending based on the wealth effect of our current overpriced market, right?

  54. ben22 says:

    regarding the “shape” of the recession,

    I believe we can officially rule out the square root idea based on the fact that the symbol is now being drawn out on CNBC. If for no other reason it should then end up being wrong.

    my current holdings are taking a solid pounding today and I care not.

  55. batmando says:

    @ ben22 12:13 pm

    RE: IdiotInvestor2 Says:
    Should we declare retail sales as lagging indicator ?
    I think the only forward looking indicator is the stock market. Since, it is going up, suggesting good things to come ahead, we should buy more stocks.

    When I first read it I took it as snark. Goes to show you never can tell (on TBP)

  56. Bruce N Tennessee says:

    Ben22:

    How are you advising your clients now?

  57. ben22 says:

    batmando,

    hard to say, I’d expect more bullish posts here as we go higher, it only makes sense, like the people looking at bears at TBP as an indicator the market should go higher.

    By the logic of both you would have been doing a lot of buying in late 2007.

    Perhaps it was snark.

  58. Paul S says:

    @ I-Man

    you must have missed the part where I said get rid of sales taxes.

  59. DeDude says:

    Mannwich;

    No the trickle down BS that Bush did, had actually been proven NOT to work before. Furthermore, there were no credible mechanistic models to support it. No way would rich people put their additional money into factories that could hire people to make products if there were no (domestic or foreign) additional consumer class money to purchase those products. So anybody with a brain and a little historic data could predict that his taxcuts to the investor class would not grow the economy.

    It was also easy to predict that when you shower the investor class with money and get a further imbalance in the investor class/consumer class ratio, the money does not get into production but is used in speculation and will create asset bobbles. We still have way to much money in the investor class, so I hope they soon get into taxing the rich, so the current bobbles can be deplated rather than allowed to run into a much more destructive poping phase.

    The thing that Bush should have done, because it has been proven to work, was lowering taxes for the consumer class (poor people). If Bush had done his taxcuts via increasing the personal exemption and kept the top tax brackets where they were, that would have worked.

    Correlation in itself does not mean causation, especially not if the correlation does not show up half the time (and you can’t explain why). You have to build a credible (mechanistic) multivariate model and then show that after X (presumably causative factor) you can observe Y (the hypothesiszed effect). Then correlation can be used to imply causation.

  60. MorticiaA says:

    ISI Company Surveys continue to move higher. Wine & Spirits is up 1.6 this week… at least we as consumers have the right idea on how to cope. I did my part at happy hour yesterday…

  61. I-Man says:

    @ Paul S:

    No, I got that part. Taxes are not the answer.

  62. constantnormal says:

    Re: foretelling the future …

    I think that we can look at the Labor Day retail sales as a proxy for the coming Christmas season. I fully expect that when the current quarter’s earnings come stumbling out in October — and I expect then to be about as profitable as the previous quarter’s were, sustained only by cutbacks in the size of the various businesses — the lack of revenue and likely bleak management guidance (where offered) will spook the herd, and we will finally get the next down leg of the W.

    Whether or not we get a subsequent up-leg, and even if we do, how far it extends upward, is probably in the hands of the stimulus package, and how fast they pour it into the economy. The single best thing they could do, for my money, is to declare an income tax holiday, at least for those earning less than $50K. That would immediately be returned in the form of those dollars being spent in the real economy, without the overhead and misallocation of government. Charge the cost (lost IRS revenue) of such a tax holiday against the stimulus package.

  63. ben22 says:

    @Bruce,

    I can’t say exactly for a number of reasons but in general I would remind that we’ve used much more fixed income this year for a lot of our clients and the returns have been very good, yes, those people have not really participated in this rally, they also didn’t participate in stocks last year : )

    As for the more aggressive clients, we are reducing equity but are not completely out of the market, this rally still has the potential to go much further than anyone expects so we are using insurance for these people just in case it ends abruptly. We have begun to build some smaller short positions but I’d rather not say how or what we are doing specifically for any clients.

  64. Bruce N Tennessee says:

    Thanks Ben….glad you are still around

    :)

  65. Paul S says:

    Well, if you don’t think reducing sales tax would directly help the little people I’m clueless.
    And here’s a sure sign how deep the lower classes are taking it- WalMart revenue down 1.4%.

    http://www.nytimes.com/2009/08/14/business/14shop.html?_r=1&ref=business

  66. ben22 says:

    bruce,

    me 2.

    the second chart tells the story so well of the last decade and how the real estate bubble fueled so much spending. I have heard recently that the new (or repeat) bubble is of course the stock market but after the wealth destruction that has occured over the last decade for many stock owners, if it is a bubble that will reflect in retail sales, it needs to get way bigger, even after this rally lots of folks are still down 30% or more from the 07 peak. I don’t see it getting big enough before another downturn, and what other bubble can be blown that will allow consumers to tap into the percieved equity of the bubble to spend.

    when I couple this with the chart of the YoY change in consumer credit I’m thinking that shopping is going to be week for both back to school and the holiday session, despite the easy comparisons from last year, we’ve got a lot more people out of work than we did then and I believe something like 2 million people are going to exhaust unemployment benefits in Sept…. not very far away.

    If we could just get a few solar flares…….

  67. manhattanguy says:

    Hope people are watching the Sugar price. I recommended $IPSU a few days ago. Sugar is in a bubble.

    http://ow.ly/15KTlR

  68. constantnormal says:

    @Paul S 12:41 pm

    Good Luck with trying to get all 50 states — some of which don’t even have a sales tax and of the ones that do, the sales tax having a different value to each of those state governments (sales taxes are about the only reliable source of state revenue these days) — to agree on how to do this. Sales taxes are a competitive weapon between the states, as well as an essential source of revenue for them.

    That’s why I think a federal tax holiday for the people least likely to save the money — the ones most likely to be collecting unemployment — would be both easy to effect, and would have the most stimulative impact.

  69. ben22 says:

    Paul S,

    certainly initially a reduction or elimination of sales tax would help but there are a lot of reasons that in a more intermediate term there is a great deal of risk on a number of levels in doing that as well as it isn’t really a long last solution, one that changes us into a healthy economy that creates private sector jobs again. Further, a small sales tax decrease to the little person won’t matter if they are unemployed or 65-70% of income is going to needs based items such as food, child-care or education and insurance. Plus, in some states such as mine, we don’t pay sales tax anyway. I don’t know what the defenition of “the little guy” is but Im’ thinking many of them already pay very little income tax as it is.

    just a thought on it.

  70. I-Man says:

    My point is, the tax issue is only a symptom of a larger sickness. Sure, on face value reducing sales taxes helps the “little people” on a consumption level. So they save 8% on a bar of soap, big deal.

    Question: what is a larger consequence of lower sales taxes? Reduced revenue for state and local govt… this on top of in some areas a 40% reduction in property tax revenues.

    Throw in the tidal wave of job losses, which leads said “little people” to look for state and local government assistance, and you see where I’m going with this. State and local governments are bankrupt and cant afford to help those “little people”.

    The federal government meanwhile steals tax payer money, and doles it out to insolvent financial institutions and inept auto companies, and to ridiculous spending programs like cash for clunkers…
    Turning their back on your “little people” too.

    Which brings me back to my original point. Taxes are not the solution. JOBS are the solution. “Shovel ready” infrastructure projects are the solution, not because they sound good from a social utopian standpoint, but because they put peeps to work. Using “bailout” money to help people who cant find work in the meantime would have been a hell of a lot more effective from an economic standpoint than making sure GS got their shit back from AIG.

    Thats all I’m trying to point out bro- not trying to flame you for wanting to reduce sales tax and raise cap gains and income tax. There’s no income to tax, and not alot of sales being made… because people dont have jobs. Period.

  71. Mannwich says:

    @I-Man: Not to stray too off-topic, but I’m think we’re going to see many tax filing shenanigans going forward as kind of a quiet “civil disobedience” by We the Sheeple. I’m sure many probably figure they might as well get their bailout too, or take back their portion of the bailout given to the banks and other corporations on their behalf.

  72. Blurtman says:

    Recovery is a lagging indicator.

  73. Bruce N Tennessee says:

    Blurtman:

    I agree. Also, if you take the words “Abby Joseph Cohen” and rearrange them it spells “No Hope Baby” and you still get a rebate of 4 letters…

    It is lunchtime here in the salt mine….

  74. [...] insurance, no money – what might that do to spending? Take a wild guess,” Barry Ritholtz writes at The Big [...]

  75. dannydayde says:

    Yeah, what’s up with all this…taking advantage of your crap car and getting a new one while other’s are fighting to make ends meat…

  76. DeDude says:

    I-Man @ 10:20;

    Cash for clunkers did exactly what it was supposed to and then some. Yes it robbed some sales from the future (5 years from now the same number of cars will have been sold that would have been sold without the program). But an economic stimulus of additional cars sold during a contraction has a lot more positive multiplier effects than the sale of those same cars when the economy is growing. These sales have allowed car companies to reduce their inventory drastically and ease up their need for credit (which at this time they can only get at exorbitant cost). As a result they can afford to stop desperation sales (which are done at a loss) and begin making money on their sale of cars. Furthermore, we have already seen that Ford will begin to produce more cars and as a result both they and their suppliers will be hireiring more people (unemployed folks from the consumer class, who will now be able to consume etc. etc.). All of that means that for a minute little amount of 3 billion, we have made sure that the previous investment in GMC and Chrysler will be recovered rather than lost. And we haven’t even talked about the national security and environmental benefits of people increasing their mpg by an average of 9 miles. Furthermore, the stimulus of this program is multiplied by a factor 4-5 because people either borrow that much or take it out of savings to pump it into the economy. And because the downpayment is so big they have no problem getting a loan to cover the rest of the purchase price (saving up that kind of downpayment would have taken years for many of them). So not only is the stimulus effect of this program a lot faster than infrastucture, it is also being multiplied in a much stronger way.

  77. DeDude says:

    Franklin411;

    It costs money to have inventory. They have to borrow that money at exorbitant cost. So they are all trying to reduce their inventory to a minimum. However, with a minimal inventory there are no huge stocks of summer clothes to move out of here by the end of August, and they don’t have anything for the traditional end of summer sale. We shall see whether the consumers of the stores get to hold out longest.

  78. [...] job, no unemployment insurance, no money – what might that do to spending? Take a wild guess,

  79. [...] job, no unemployment insurance, no money – what might that do to spending? Take a wild guess,” Barry Ritholtz writes at The Big [...]

  80. DeDude says:

    Paul S;

    That is so true. The investor class is so overcapitalized that it creates dangerous bobbles. The consumer class is so undercapitalized that it is killing our (70%) consumer driven economy. Stop killing the consumer class with consumption taxes and get the revenue by using a progressive income tax to drain the investor class of excessive capital.

  81. call me ahab says:

    dedude-

    why stop there? let’s give everyone a credit- seems plausible to me. And to buy a house- how about a $10,000 credit to all buyers- not just first timers- then we can give a credit on a brand new refrigerator, washer, dryer, range- but let’s don’t stop there- how about credit for new furniture- the other shit is probably out of style anyway- and did I mention clothing? credits for brand new energy efficient wardrobe-also-

    let’s tax savings- not just the interest- but the principal- to change people’s behavior and make them want to spend so they don’t get taxed-

    i love this- it’s so easy- and i’m not even a financail genius-

    before long the economy will be humming along beautifully

  82. Thor says:

    DeDude – Ford is going to produce 10,000 more cars for this year. Given we are millions off the peak auto sales numbers that’s hardly reason to rejoice.

  83. IdiotInvestor2 says:

    Oh oh.

    I am new here and should have added appropriate smilies and tags like () around my comments about the recursive logic – Buy stocks because they are going higher predicting rosy future.

    But ben22 did say one thing correctly – my handle befits me. And that’s NOT a sarcastic statement.

  84. Bruce N Tennessee says:

    http://www.businessinsider.com/henry-blodget-elizabeth-warren-we-have-a-real-problem-coming-2009-8

    Elizabeth Warren: “We Have A Real Problem Coming…”

    Ben22: This video reminds us (I believe Elizabeth Warren would be considered fairly liberal) that most of our problems have not gone away…..

    http://www.mortgagebankers.org/tools/FullStory.aspx?ArticleId=6721

    Second-Half Recovery Not Likely, Data Suggests

    This is a summary of where we are right now…and why hope may be trumped by reality…

  85. DeDude says:

    And do not discount the effects of the raised minimum wage. At a time when many employers are tempted to use the high enemployment rate to lower wages (feeding the down spiral), the floor is being lifted and will counter that unfortunate trend.

  86. dead hobo says:

    call me ahab Says:
    August 13th, 2009 at 2:03 pm

    dedude-

    why stop there? let’s give everyone a credit- seems plausible to me.

    reply:
    ——–
    Don’t worry. It’s coming. Rumors of the Treasury issuing perpetuities to refinance the debt are beginning. Banks will be required to purchase them, but will be able to consider them as capital. Once that happens, everything can be subsidized.

    I want a new kitchen. Why does Obama vex me by not buying me one to support the economy? I’ll even pay for 1/2 if he wants.

  87. I-Man says:

    @ dedude:

    “So not only is the stimulus effect of this program a lot faster than infrastucture, it is also being multiplied in a much stronger way.”

    You honestly believe that statement to be true?

    And you seriously call our “investment” in GM and Chrysler just that… an “investment”???

    If so, dude, then I dont see our interchange going much further.

  88. Paul S says:

    ahab,

    that last post of yours has so many strawmen it’s a firetrap.

  89. Thor says:

    Plus – I think we’re missing the bigger picture here is that yes, the economy does seem to have stopped falling off a cliff. What’s apparently caused that is the massive government stimulus and 0% interest rates. Our economy is 70% consumer spending which does not appear to be picking up at all. The government seems to be of the mind that at some point in the near future the consumers are going to start spending again. I think this is a stretch, what we’re seeing right now it probably a generational change in spending habits.

    What’s going to happen if this turns out to be the case? Government stimulus simply cannot go on forever, there just isn’t enough money floating around in the world for this to go on indefinitely.

  90. DeDude says:

    Constantnormal; unfortunately when the consumer class is realy pressured and scared, they use any additional money to pay down debt and/or save for a rainy day. At this phase the only effective stimulus is direct government spending or spending incentives (that are directly tied to the spending). Holiday sales tax-free days could work, but the Feds would have to finance it for the states.

  91. ben22 says:

    @II,

    sorry, didn’t realize you were joking. the handle is kind of funny. that sad thing is, people have said to me, in all seriousness, exactly what you said above.

    DeDude,

    Imho you are going to eat your words on CFC. You are making the same arguments the proponents of the SUV tax credit scheme made just six years ago, now we are paying those same morons that bought the gaz guzzlers to hand them in so they can get a new one. You remember all that right? And, one of my clients runs floor operations at the largest ford dealership in philly, I can tell you, as he told me, hiring more people,…. out of the question for the foreseeable future. Also, your statement about loans being easier to obtain b/c the down payment is so big, according to my client, is also not true, he’s had people put down over 50% but b/c of the credit score, or income he cannot get the customer a loan, he says this happens still now in 35% or so of the cases.

    Bruce,

    i saw that video at ZH yesterday. She’s a breath of fresh air if you ask me, too bad her position does not carry more weight.

  92. dead hobo says:

    Thor Says:
    August 13th, 2009 at 2:21 pm

    Government stimulus simply cannot go on forever, there just isn’t enough money floating around in the world for this to go on indefinitely.

    reply:
    ———
    Not true. If the perpetuities idea gets legs and grows into a UST program, the national debt becomes an interest only credit card. This can probably finance social security through year 2100 and buy me a kitchen.

  93. Thor says:

    DH – I don’t know whether to laugh or cry over your statement. On the positive side, if what you say is true – Social Security is set to run out of money right around the time I’m supposed to start collecting it.

  94. Pat G. says:

    The economy has now met the economist’s definition of a depression. We passed the recession phase with the Q2 GDP figure. Please keep up.

  95. call me ahab says:

    “that last post of yours has so many strawmen it’s a firetrap.”

    thank you- I pride myself on my gift to point out the absurd

    DH-

    I have heard no such rumor about a perpetual bond- so I assume you are j/k

  96. Mannwich says:

    @Thor: “Run out of money?” The only time that will happen is when our global creditors finally put the clamp down on these shenanigans once and for all. Until then, put it all on the giant credit card and hope for the best. QE baby QE. Print baby print. Rinse, lather, repeat.

  97. batmando says:

    @
    “a breath of fresh air if you ask me, too bad her position does not carry more weight.”
    Yeah, imagining Bair as next Fed Chair, dream on, he sez to hisself.

  98. dead hobo says:

    Pat G. Says:
    August 13th, 2009 at 2:31 pm

    The economy has now met the economist’s definition of a depression. We passed the recession phase with the Q2 GDP figure. Please keep up.

    reply:
    ———
    That should be worth $100 oil and S&P 1100+ by the end of Q3. The recovery should be spectacular, thus justifying the optimistic asset valuation. The further it falls, the more fantastic the springboard back. Time to go long and borrow to do it.

  99. Mannwich says:

    I’m holding out for the “Cash for Kitchens” and “Cash for Cans” (new bathrooms) programs. Both are badly outdated but work OK functionally but if Banana Ben wants to give me free money that we’ll all have to pay back collectively (or default on) down the road, I’m game. Just say “when”.