One Less Bag In The Cart...

Retail sales in Oct. fell nearly 3% from Sept., and, when viewed
yr/yr adjusted for inflation, were down about 9% from Oct. ' 07.
That's the worst yr/yr performance in over 40 years, but not by
much. There were comparable spikes down in the recessions of
1974-75 and 1980, with both following inflation shocks that
sent real take home pay down. Results of sales for the past month
follow that pattern of retrenchment that comes in the wake of
persistent inflation pressure on the wage.

The spike down in retail ratifies a deep downturn in the economy
as consumers recast budgets and defer spending on signs of
gathering job losses. Nothing unprecedented here, but you have
watch spending most carefully now to see whether the down spike
in spending is the beginning of a more intense but still temporary
retrenchment or the onset of a sea change in consumption. The
retail sales blows outs of 1974-75 and 1080 were equally stunning
and raised comparable questions.

The demographics are not nearly as good now as in those prior
periods, and debt service requirements are stiffer. So, even if
the US is working through a temporary shock, an eventual
bounceback in sales may be milder. For the short run, with inflation
pressure rapidly abating, it is best to focus on how serious a
likely ratcheting up in the jobless count will be.

This is ugly news as we head into the economically important
holiday season.