Don't Believe The Hype

The monthly retail sales report was released to great media hype, as the "preliminary estimated" retail sales number for September was calculated to be up 1.1% from August and exceeded the Wall Street Einstein consensus estimate. 

HOWEVER, and remember, with me "however" always surfaces when I pull up the actual data and take a closer look at it than does that babbling bald moron on CNBC.  Here's the report if you would like to peruse the numbers yourself:  LINK  Now for "however:"  First, please note that the reported headline number is a "seasonally" adjusted estimate using some fancy computer model, per the footnote to the report.  I would love to see how the model calculates these "adjustments" so we can see if they are even reasonable.  But this is a big problem with all Government economic reports.   

Let's look at a few of the notable data points that the brainless wonders on television are self-flagellating over.  Everyone is gushing about retail and auto sales.  But if you look at the second table on the above link, you'll note that by far the largest jump in sales came from the gas pump.  Has anyone noticed that despite a big drop in the price of oil, the price of gasoline seems to keep crawling higher?  I would suggest that a large component of retail sales for September came primarily from gasoline sales.  Is that good for the economy?  To be sure, it looks like auto sales jumped a bit, and that was confirmed by the recent monthly auto sales report for September which was released at the beginning of October.

"However,"  it appears to me that the increase in auto sales, especially at GM and Chrysler, are being fueled by the big increase in subprime auto loans:  LINK  Wait a minute - didn't we get into the trouble that hit in 2008 because of subprime lending?  We know that GMAC, the finance arm of GM, went bust and was taken over by the Obama Government.  It was recently reincarnated with Taxpayer money (now called "Ally") and once again jumped heavily into subprime auto lending - this time backed by YOUR money.  This is exactly why auto sales at GM and Chrysler appear to be strong.  I might also note that, per the good due diligence of zerohedge.com, most of these auto sales end up in being shelved at dealers.  Please note that an auto manufacturer books a sale once the car is loaded on a train/truck and leaves the factory lot.  The dealer then pays for its purchase using "warehouse or floor" financing provided by...GMAC (You).  This is not an attribute of real, organic economic growth.

Now for the final fork-insertion into the hyped retail sales report, which we now know is likely overstated by "seasonal adjustments" and inflation and is skewed toward gasoline sales.  Shortly after the retail sales report, the Michigan Consumer Confidence Index was released and was substantially lower than the Einstein consensus estimate.  In fact:   "Confidence among U.S. consumers unexpectedly dropped in October as Americans’ outlooks for the economy and their finances slumped to the lowest level since 1980."  LINK 

Hmmm, that's not good.  The only remark I have to say about this is that this report further reinforces my view that the Government is overstating its retail sales estimates.  After all, does it seem likely that people are out spending an increasing amount of money that they don't have if their attitude and outlook on the economy is the lowest that it's been since 1980?  The golden truth of the matter is that the Government is stuffing GM and Chrysler auto dealers with inventory using Taxpayer money to finance the stuffing (the Government subsidizes leases and backstops Ally's subprime loans), making auto sales look better than they really are.  Moreover, it looks like most of the increase in retail sales, ex-autos, came from gasoline sales.

So for any of you who poisoned your mind by reading the calculated risk blog or watched CNBC/Bloomberg, please re-read the facts as I just presented them.  Then "here's what I wantcha all to do for me:"   celebrate the truth and Don't Believe The Hype: