Friday, November 14, 2008
Consumer confidence is null, the financial markets remain on red alert, workers struggle to stay employed, home values maintain their descent, and the October retail sales show households cutting back on spending with a broad-based 2.8% decline. The weak report was underscored by October’s sharp decline in gas and auto sales, -12.7% and -5.5%, respectively, but also people are shopping less: department stores took a 1.3% hit, furniture stores were down 2.5%, and electronics sank 2.3%. Sales have been struggling broadly since August 2008, and don’t expect any improvement in the coming months.
The chart illustrates real retail sales (extracting the price effects) and nominal retail sales spanning January 2006 to October 2008. As illustrated by retail sales, the economy peaked either in November 2007 or May 2008 according to the real series, but no matter how you look at it, real sales took a nose dive starting in June 2008.
Like I said in this post, I could be convinced that the recession started at the end of 2007. However, when the recession started is beside the point, it’s now a matter of how long the recession will last. It is becoming increasingly clear to me that policy makers are allowing the financial crisis pass through to the real economy like a really bad hangover following record shocks to housing, manufacturing, and prices. Unfortunately folks, it’s all downhill from here.