Things Looking Up... Maybe!

The Census Bureau just released the ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, SEPTEMBER 2021.

Last Month, I stated the little upswing in inflation adjusted numbers were not a trend. We have back to back rises, so maybe... just maybe a trend is starting to form.

Of course we had a 5 month trend from May 2020 until August 2020, before tapering off. Sometimes year over year spending is seasonal, so September is an improvement over last year. On the other hand, a couple of months uptick going into the winter months does not a booming economy make. In fact the indicators for 3rd qtr. GDP are trending downward... rather sharply, imo. 

Consumer spending has altered so much the past 19 months (yes, it has been that long), the predictability is a stab in the dark. Just how many cars, freezers, refrigerators, TVs, etc. can be purchased until the consumer's desires are satiated? How full do the pantries become, as well. At what point does inflation quell the consumer's appetite?  Is inflation encouraging spending... to get that desirable item, before the price goes up? How much forward purchasing is due to the "supply chain?"

According to the GDP, the consumer is spending 18% more (inflation adjusted) on goods since end of 2020. Of that 28.9% more on durable goods; 12.2% more on non durable goods; 3.4% LESS on services. All of which are outside normal expectations.

A thought exercise... AA store in normal times sold about 10 freezers per month and could replace those within two months. There is 20 in the pipeline and the store pays as they are delivered. Just in time. 

Due to covid, the hoarders started buying 20 freezers per month and due to the supply chain congestion, the delivery time is 6 months. AA store now has 120 freezers in the pipeline, with payment due on delivery. 

The consumer reverts to normal... AA store cancels orders for the next 10 months, but still has to pay for those 120 freezers as they are delivered. By the end of 6 months, the supply on hand is 60 in the warehouse, that have been paid for AND the supply chain has been resolved. Far fetched, but this is exactly GM's problem circa 2009.

This is a very hard landing scenario with the freezer manufacture laying off people for long periods, the store dropping prices... in an attempt to stay afloat with operating expenses, etc. These things make the consumer very edgy and resistant to spending what money they have on hand and/or going deeper in debt. 

The question becomes... how to avoid a hard landing? If I am smart enough to consider this... you can bet the FED is thinking of it as well. Raising interest rates to quell inflation that may very well BE transitory, could upset the apple cart. 

I think that is referred to as "caught between a rock and a hard place".

Interesting times.