The Numbers Tank

For the macabre amongst you here are today’s economic statistics:A Record Decline in October’s Retail Sales

Not to put too fine a point on it: this sucks.

I have to love the idiot comment part way down this article. An analyst, whom I will not name, says that we don’t seem to have ‘found the bottom yet’.

Well duh! That’s because we are nowhere near the bottom.

Let’s think this through, rather than be a stock analyst-come-cheering section for Wall Street.

With consumer spending dropping like a stone, retail sales were off a record amount in October, businesses are facing a grim holiday season. The chart to focus on here is not the retail sales themselves but the inventory to sales ratio. That ratio is rising steeply. This means that manufacturers have tons of stuff they cannot sell. Presumably they miscalculated the drop in sales. Carrying unsold inventory is a nightmare: the cost of making the product is already on your books but you have no revenue to offset it. Plus your balance sheet is bloated so you have to borrow from the bank, and pay interest costs, to carry that inventory. What do you do? Cut back production to reduce inventories. That means cutting work hours or even laying off workers.

The point I am driving at is that the drop in retail sales will put in place a ripple effect that will cause the economy to contract more over at least the next month or two.

So, of course we haven’t found the bottom yet!

The current trajectory suggests more bad news in both November and December. Beyond that it is impossible to tell, although I think the first quarter will be pretty grim also. This looks as if it will be a nasty, sharp, and steep recession. Much worse than the last two. I expect unemployment to creep up to between 8% and 9% by late next year, although I doubt we will reach the 10.5% of back in the early 1980’s.

So button up. This is going to get worse rather than better. 2009 will be remembered as a very bad year!