Rationalize This!

The decline in retail sales in October 2012 is being attributed to Hurricane Sandy:

Retail sales fell in October as American consumers pulled back after a three-month shopping spree and superstorm Sandy slammed into the East Coast, shutting malls and auto showrooms.

The 0.3 percent drop followed a 1.3 percent increase in September that was larger than previously reported, Commerce Department figures showed today in Washington. While it was able to collect information from the affected area, the agency said it couldn’t quantify the impact of the biggest Atlantic storm.

Companies such as General Motors Co. (GM) and Ford Motor Co. (F) said last month’s storm-related sales slump will probably reverse as brighter job prospects, rising home prices and sturdier finances boost household confidence. At the same time, today’s report showed Americans bought fewer non-essentials, which may reflect mounting concern over possible tax changes and limited wage growth that pose risks for the biggest part of the economy.

“Some of it is due to hurricane taking away some discretionary sales,” said Jonathan Basile, director of U.S. economics at Credit Suisse in New York. “Spending still seems subpar, and consumers are facing headwinds on their paychecks and incomes. They’re also faced with uncertainties about taxes going into year-end.”

I’m trying to get my head around this. Tropical storm winds and rain striking the South-East of the United States on October 25 through 27th and the hurricane the East Coast on October 29 reduced retail sales by 0.3%? Wouldn’t stocking up and moving purchases forward in anticipation of the storm have offset this? Wouldn’t the additional buying in Florida, Georgia, the Carolinas, and Virginia to repair the damage done by the storm have offset the closing of stores in the Mid-Atlantic on the 29-31st?

At least we can rejoice in November’s figures (seasonally adjusted) being much, much better due to all of the economic good the destruction will produce.


ZeroHedge sees the result about the way I do:

The just announced October retail sales tumbled, with their worst miss of expectations since May 2010, and the first sequential decline since June: printing at -0.3% for both the headline and the ‘ex autos and gas’, on expectations of a -0.2% and +0.4% rise. Ignoring for a second that the Commerce Department said that Hurricane Sandy had both positive (remember those massive lines in various stores ahead of Sandy) and negative impacts on retail sales, it would be truly inconceivable for the sellside Wall Street consensus of diploma’ed PhDs, which knew about Sandy’s impact on retail sales well in advance, and thus could adjust its numbers, to actually, you know, adjust its numbers. Either way there is no way to spin the longer term major store sales trend (last chart), which shows that the US consumer, out of money, out of credit, and out of savings is entering the holiday season with little to zero disposable spending power.

Check out the graph illustrating retail sales slowing more or less progressively since March.

61 comments… add one

  • TastyBits

    The President’s visit gets their plight back into the news. Unfortunately, they have no political value. Otherwise, the news coverage would be a Katrina redux.

  • Perhaps this is unduly critical of the president but what’s he running for?

    If he can’t handle the criticism he should resign. If he isn’t going to do the job he should resign. If he doesn’t know how to do the job he should resign. General Honore had an article up on CNN today wondering who was in charge, and he had a list of specific complaints about what wasn’t being done that should be done. Right now it doesn’t look like any of the people in charge up there should be allowed to coordinate the school bake sale, much less handle anything important.

  • Andy

    I think its your in-law’s problem; they should have moved to North Dakota.

    Ironically, the family moved to Ohio from the Dakotas! Still a lot of family there – in fact there is a reunion in South Dakota next summer.

    Show a little humanity, PD. Haven’t they suffered enough? After all look who their son-in-law is! 😉

    Somehow I’m still managing to fool them!

    But why going there the right thing to do? Are the people he’s showing his concern about and those most in need of his concern the same people?

    Sadly, President’s will get criticized for not going. I have some sympathy for the position they are in – they’ve got to go to demonstrate interest and support, but they don’t want the entourage/court to cause problems. Personally, I wish President’s would crack down on the security theater that surrounds them – it’s completely excessive.

    Let’s have capital gains on stock sales count as ordinary income.

    Personally, I would get rid of all corporate income taxes (at least at the federal level) and tax capital gains as ordinary income.

  • TastyBits


    … Let’s have capital gains on stock sales count as ordinary income.

    The problem is that nobody will invest. Most of them will stuff their mattresses, and this will depress the mattress industry. Others will put it into the bank to earn 0% interest. A few of the really smart folks will invest in Venezuela, Nigeria, or Greece.

    The Democrats will work with the Republicans to offset any tax rate increases with additional tax deductions.

  • TastyBits

    General Honore

    Because of the political use of Katrina, he was never properly credited with what he did. The Louisiana National Guard commanded by General Honore did an outstanding job, but that did not fit anybody’s story.

  • steve

    @TB- 1) History shows us that we had just as much investment, on a percentage basis, when capital gains, and dividends for that matter, are taxed at a higher rate.

    2) I was suggesting this specifically in light of the observation that as Dave and Drew pointed out (certainly it can be inferred from what they say) , having the stock markets shut down for a couple of days has no adverse effect on GDP.


  • having the stock markets shut down for a couple of days has no adverse effect on GDP.

    Hmm. I never thought about it. Offhand, I don’t think I see a reason that shutting down the stock market for a few days would have an adverse effect on GDP. Shutting it down permanently might.

    In the past I’ve suggested very small per share transaction taxes on sales of stock in the interests of reducing “froth”. If on Thursday a stock goes up by a dollar and on Friday a stock goes down by a dollar, what’s the effect on GDP? Or goes up and down by a dollar a thousand times in the same day? I would say none. That suggests that a brief shutdown wouldn’t necessarily have any effect, either.

  • TastyBits


    It must not have come across correctly, but I agree with point #1. The sarcasm was directed at those who claim that investing will drop with a tax increase. At the present time the US is the safest place to park money. This is similar to dropping the US’s credit rating.

    I also think that there is a stock market bubble funded by the extra money being pumped into the system. The recent gyrations are the investors throwing a temper tantrum.

    The deduction comment was directed at those who claim raising tax rates on the rich will result in the rich paying more taxes.

    Your point #2 is interesting, and like @Dave Schuler, I have thought about it. My initial guess would be there would be little impact, but there would still be after hours trading. The bond and commodity market shut downs would probably affect GDP, but that is another guess. (By guess, I mean a working hypothesis subject to change.)

  • steve

    I wrote Cowen and he suggested that since major stocks could still be traded in Europe, a short term stoppage in our exchanges should have little effect. Tends to make me think most of what goes on in the stock exchanges has little direct bearing on output.


  • Tends to make me think most of what goes on in the stock exchanges has little direct bearing on output.

    Duh. What do you think they do there? Make cars, fridges and microwaves? No. They trade pieces of paper.

    This is why looking at the stock market as a sole indicator is not very good.


  • TastyBits

    Long ago, I came to the conclusion that the stock market is a mechanism to separate ordinary folks from their money. The dot-com era solidified this notion for me. In Las Vegas and Wall Street, the house always wins. The Las Vegas mobsters will make sure you have money to get home, but the Wall Street mobsters will make sure they get your home as well.

    Anybody wanna bet Tim Geithner is going to be making a lot of money real soon. He may be able to afford a tax accountant. He is a dirtbag.

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