Sales Slump Continues
The collapse of retail sales continued into December. The size of the decline surprised most analysts who had been expecting the slide to extend to the end of the year, but had not anticipated quite the drop we saw. Here’s the press release from the government: ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES:
The decline was very sharp, down 2.7% from November and down a whopping 9.8% since December 2007. What makes matters worse is that November’s figures were revised to show a sharper fall from October than had been reported before [the October to November decline was increased from 1.8% to 2.1%].
Leading the way was decline of 35.5% from December 2007 in gasoline sales, and 22.4% in auto and auto parts sales. While retail stores saw a 2.7% decline in the same period.
These numbers are bad. They confirm the overall grim picture of continued contraction in the economy. Because personal consumption is about two thirds of the total economy the slump in spending means that the economy is still contracting. Thus the recession is still deepening with no end in sight. Most forecasters are now arguing that the recession may last all year and that we will not get much if any growth until the early part of 2010. If this outlook is correct then we are experiencing the worst recession since the Depression without any doubt.
Consumer confidence is obviously very low. The collapse in home prices and the potential loss of jobs are forcing the average American to retrench rather than buy. This has set in motion the classic ‘paradox of thrift’ where one person’s retrenchment is another person’s lost job. This vicious cycle can only be broken by a recovery in confidence and the loss of fear. Banks are loth to lend for fear of losing their money; businesses are cutting back jobs in order to maintain profitability; and families are being forced to reduce spending in order to make ends meet. Unfortunately this is the picture we are likely to see all year long. This morning’s sales figures only confirm the story.
All of which reinforce the need for urgent and strong action from Congress. The stimulus package must be enacted quickly. And it must be adequately sized. This is not a time for timidity or penny pinching concern over the long run impact of government borrowing. As Lord Keynes famously replied when asked whether he feared the long run effects of government deficit spending: ‘In the long run we are all dead’.
We have managed to put ourselves in peril. So fussing over budget deficits has become a foolish diversion. Right now we need to bail the water out. When we have stopped sinking we can worry about the details of the ship.
