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.

Update

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
  • Mark

    Oldest excuse in the retailer handbook. Blame poor sales on the weather.

  • Well, as you rightly point out we are at a point where another recession starting would not be out of line given simply the passage of time. The average expansion length post WWII is 58.4 months or just under 6 years. It has been 39 months since the expansion started and nothing says we have to go to 58.4 months. Next week the NBER could announce that we are in recession.

    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.

    Do I detect a note of sarcasm here?

  • Note? NOTE? 😉

  • nothing says we have to go to 58.4 months

    If you discount the longest duration, 120 months, that figure goes down substantially. The “Great Moderation”, RIP, saw economic expansions of extreme length.

    That extraordinarily long expansion was recent. IMO it was, at the very least, contrived.

  • Next week the NBER could announce that we are in recession.

    You really think they’d do anything to embarrass the Great and Powerful Ob? No chance. They will not declare another recession until about 2025, when he leaves office after his fourth term and a (Redundancy Alert!) completely senile Joe Biden takes office. US employment will be down to about 85 million part-time people working at Walmart and Apple stores, none of whom speak English.

  • Drew

    Mark

    As an ex- bank lender, we always used to laugh at the standard issue “weather excuse” for financial performance.

    But I’m truly shocked. ( shocked!!) by the Post election stats. What next? Unemployment rate is up?! I’m shocked. Shocked!!

    Once again I say. Careful what you wish for Average Joe. Fearless Leader has not your interests in mind. Just his.

  • PD Shaw

    How much of the “business cycle” over the past twenty years are bubbles? And how would the “business cycle” have looked in their absence?

  • PD,

    Bubbles are usually pretty easy to stop after the fact…..

  • Spot, not stop.

  • PD Shaw

    So, we can’t rule out that we are in a bubble now?

    I am pretty much the last person to say the past is irrelevant, but expanded government intervention in the economy and improved inventory control would appear to me to reduce the extent of downturns absent bubbles. Also, my relatives at CAT are being forced to take unpaid vacations this Winter, which makes me think that in a “deflationary economy” producers have more tools to avoid overproduction.

  • So, we can’t rule out that we are in a bubble now?

    There’s no question we are in a bubble now, a government debt bubble. That trillion dollar deficit looks like a plus on the GDP ledger, yes? Whittle that away to the $200,000,000,000 or so of a few years ago and the economy takes a big drop.

  • I think there are several bubbles in progress now. One of them which I’d planned on posting about today is in prime farmland. The price of an acre of prime farmland has risen past any reasonable expectation of food prices for the foreseeable future.

    I think a good portion of the issue is due to foreign investors including sovereign wealth funds getting into it. IMO it’s a not just a collapse but a disaster waiting to happen.

  • Schuler, I didn’t mention that I think the financial sector is still bloated and that healthcare is in a bubble because I view those as outgrowths of the government bubble. The farmland bubble you describe (and it’s news to me) doesn’t sound directly related to government policy. (I will be exactly not at all surprised if you show me a direct causal relationship between the farmland bubble and government, but I suspect it is more indirect, like some of the urban property bubbles in the US when the Japanese started buying up everything in sight.)

    Any more major bubbles you can think of that aren’t directly government related?

  • I think it’s government-related. It’s just not our government.

    One aspect is related to our government: the reason that farmland is bubbling is that it’s viewed as a safe investment by people who want to earn substantial profits but are very risk-averse. Government policies have contributed to low earnings for other investments and to other vehicles being thought of as risky.

  • So, we can’t rule out that we are in a bubble now?

    Nope. You could try looking around at various asset prices and see if any are increasing in price beyond any reasonable measure (Dave’s farm lands). That could signal an asset bubble.

    I’ve also wondered about health care being a bubble as well. It has gobbled up a huge portion of our GDP. Bubble? I don’t know. When will it pop, assuming it is a bubble? I don’t know. One problem with bubbles is that the market an stay “irrational” longer than your pocket is deep.

    I am pretty much the last person to say the past is irrelevant, but expanded government intervention in the economy and improved inventory control would appear to me to reduce the extent of downturns absent bubbles.

    Well…that is hard to say. It was more the Fed’s doing that the “government”. And whether it was due to keen insight or just dumb luck is now an open question again given that, 1. the Fed didn’t stop us from going over the cliff and 2. it doesn’t seem to have the ability many thought it did to pull us back up.

    I suppose Ben could take that as his point to inject his MMT stuff.

    My response would be, look, national accounting identities are great as far as they go, but it seems pretty obvious they aren’t shedding light on the behavior that is keeping the economy mired and stagnant.

    And the answer probably isn’t neat and cute like “aggregate demand!!!”

    That is the refrain from the boobs over at OTB and probably elsewhere. Problem is they treat aggregate demand as if it is something than what it really is…a convenient fiction for macro economists (even micro economists when you get right down to it).

  • There’s no bubble in snack foods. Here’s an example of our whole world backsliding:

    Reuters

    5:41 p.m. EST, November 14, 2012

    Hostess Brands Inc. said it would seek to liquidate the company this week unless enough workers stop a nationwide strike by the end of the workday Thursday and allow the maker of Wonder bread, Twinkies and Merita bread products to resume normal operations.

    Members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike last Friday in response to bankruptcy court-approved pay cuts. The company, which has about 18,000 employees, including several hundred at a Merita bakery in downtown Orlando, filed for Chapter 11 bankruptcy reorganization in January.

    Hostess said it would file a motion with U.S. Bankruptcy Court in White Plains, N.Y., on Friday to close shop and sell its assets if enough employees do not return to work by 5 p.m. Eastern time Thursday. If the motion is granted, Hostess said, it would begin shutting down operations as soon as next Tuesday.

    Hostess Chief Executive Officer Gregory Rayburn said the company did not have the financial wherewithal to weather an ongoing strike. A union spokesman was not immediately available for comment.

    A world without Twinkies. They didn’t tell you THAT’S what Obama was going to deliver, did they?!!?

  • First they shut down the space shuttle program, then Big Gulps, and now Twinkies. This is a world circling down the drain at the bottom of the bowl….

  • PD Shaw

    Intersting comments. One data point about healthcare bubbles is that the hosptial/medical care network my wife works for just posted its largest profits in its 115 year history. The calm before the storm, perhaps.

  • My FIL started buying farmland in central LA as soon as he could pocket enough change to do it, back in the ’60s. He purchased 500 acres. That’s where the trees are.

    That land now sells at about $5,000 an acre.

  • TastyBits

    I have not had much time to post. Here are a few thoughts.

    It is not 1936 or 1940. The US economy is bad, but I think it was worse then. There are European Democratic Socialists in the gov’t, but there were communists and Soviet spies in gov’t. President Obama is making a bad economy worse, but the US will survive again.

    The Republicans will hold the House until the next census. The era of a permanent Republican majority has been replaced with a permanent Democratic majority. In politics, permanent is about 10 years.

    @Icepick
    I would hate to see you leave, but you know what is best for you. One of the problems with voting is that you get invested in the outcome. To me (and probably @Steve Verdon), what needs to be changed is what gives each party its power. In my opinion, the differences are mostly “window dressing”, and what is declared “good” is offset by what is undeclared “bad”.

  • TB, the problem isn’t that Romney was likely to be much better. The problem is that the American people have now defined THIS a success. From high unemployment to decreasing real wages to exploding health care costs to an Administration that thinks photo-ops are all that are needed to treat problems and on and on and on, this is now considered something to be aspired to. This is now the GOLD STANDARD for what a pol can consider a success.

  • And I’m still here until I get that last post written for Ambiance. It’s proven to be a bit of a bear.

  • TastyBits

    @Steve Verdon

    … One problem with bubbles is that the market an stay “irrational” longer than your pocket is deep.

    This is how the rich become ultra-rich, but I am not complaining. I could see the housing bubble, but I could not afford to lose money until it burst.

    I think that a lot of things that are not counted in the inflation (or CPI) numbers are being inflated.

  • TastyBits

    @Icepick

    In bad economic times, the Democrats have an advantage. The Republicans are seen as the party who will eliminate the “safety net”. This may not be true, but their rhetoric supports this conclusion. On social issues it is the same. Declaring they want to overturn Roe v Wade will eliminate the limited abortion voter.

    In your specific case, the Republican solution is for you to have a job in ND, and the reason you refuse to move is that you are lazy, shiftless, a deadbeat, a complainer, a malcontent, etc. If asked, they will parade a line of people worse off who have succeeded.

    Many voters are never given a real choice. Republicans have written off a portion of the population, and it is not surprising that portion does not vote for them. Democrats attract a large number of voters who they should repel. The reason is simple. The rich liberal knows he will not become less rich under the Democrats.

    Hoodwinking and bamboozling the public is what politicians do.

  • TB, the Dems have written off a large swath of voters as well. It’s not like they give a fuck about white working class voters anymore, unless they’re in a union.

  • TastyBits

    @Icepick

    The Democrats do not give a f*ck about most of their voters. They claim they do, but the reality is quite different. Most of the policies they advance do little to improve the intended problem, and many exacerbate the problem. The big difference between the parties is PR, and Democrats are winning the PR war.

    Few Republicans are familiar with the people and communities Democrats claim to help. The Republicans may have statistical knowledge, but they have little first hand knowledge. I know what are the results of the policies advocated by @michael reynolds and the OTB crowd, and I suspect you do as well. I am sure they would like to label me a racist, but I know what life is like in the hellholes.

    Also, union workers are valuable to the union bosses as a source of income, and since the union bosses contribute to the Democrats, the unions are valuable to the Democrats. The union bosses not the unions should be the target of the Republicans.

    I just read a Mish post on the Republicans, and I mostly agree.

  • jan

    Tastybits,

    Just read the Mish link you posted, above. I have read and listened to Mish’s ideas over the years, and can’t say there is much daylight of disagreement between us, generally speaking. However, IMO, his appraisal of Romney is too harsh, in that he thinks his election loss is a republican gain for opening up new Rand Paul kind of pathways to a bigger and more appealing GOP tent.

    Even if this holds some truth to it, I think had Romney been able to pull out the election, there would have been some positive headway made in fiscal policy, in conjunction with ACA appeal or at least modification, cutting back on bureaucratic regs, and more attention given to what is sapping our economy –unsustainable entitlement programs and pension plans. Romney could have at least been an intervening door stop, holding things back from what concerns me — unabated social program/frivolous cronyism green energy ‘investments’ at the cost of raising the deficit and energy costs to prohibitive levels.

    What I strongly agree with Mish on is how the links to a Limbaugh kind of voice box has only been harmful in painting the right-of-center in being as out-of-touch, as let’s say a Reynolds type of person is on the left. Extremist’s POV alienate and divide people, whether they are on the far left or far right. Hence the unhealthy polarization, which, IMO will only get worse, at least over the next 4 years.

  • steve

    @jan- HAve to agree that the polarization stuff will get worse, or at least not change. The faux outrage machine remains popular and doesnt appear to be taking a beating on either side. They make a lot of money at what they do. TBH, I am not sure when or if they will lose their influence in our politics. They are awfully good at what they do and too many people trust them.

    Steve

  • TastyBits

    @jan

    I find Rand Paul more appealing than his father. I have reservations about him, but compared with the existing Republican leadership, I would rather him.

    Anybody who wears a team jersey will be assumed to endorse the team positions, and when Massachusetts Mitt came out, he was quickly replaced with Scary Mitt. When asked about abortion, he answered that he did not intend to do anything about abortion. This caused an uproar among his committed voters, and he quickly released a statement assuring them that he would do something about abortion.

    If he cannot stand-up to voters who will crawl over broken glass to vote for him, I doubt he is going to grow a spine when faced with House Speaker Boehner and Senate Republican Leader McConnell. The Democrats social programs and cronyism is matched by Republican versions.

    The reason the economy is being hurt presently is due to cronyism in the “regulated” financial industry. This cronyism allowed a staggering of credit to be given, and until the bad debt is written off/down, the economy will not improve. When the economy works itself out, federal revenue will increase, and federal spending will decrease. That will be the time to address the problems with federal spending.

    Environmental and energy regulations are hurting the economy, and this is one area where President Romney could have helped. Cheap energy and reasonable environmental regulations will attract manufacturing, but with the Fed and gov’t pumping dollars into the system, financial activities are very profitable.

    Finally, the US economy is enormous. Some US city and state economies are larger than large first world countries. Four more years of Obama will not kill the US. If the US is in decline, it will take a long time to fall, and it is probable that the rest of the world will be much, much worse.

  • Some US city and state economies are larger than large first world countries.

    Heck, our healthcare system is the size of France’s whole economy. The VA is larger than British National Health.

    Solutions tend not to scale linearly. Bureaucracies organized hierarchically at the very least increase in complexity on the order of n log n with size. Shorter: solutions that work in Denmark will cost enormously more if we try to implement them here. That’s why I could scream when people say things like “Well, if the French (or Germans, or Swedes, or whoever) can do it then so can we.” One size does not fit all.

  • The huge uptick in initial weekly unemployment claims is also being blamed on Sandy, though a couple of sources indicate that the big surge in claims came in OH and PA. If that’s true that kind of kills the sandy theory.

  • If that’s true that kind of kills the sandy theory.

    Sympathetic vibrations. Maybe action at a distance?

  • Sympathetic vibrations. Maybe action at a distance?

    Sure, why not? No doubt some strange anomaly of quantum mechanics.

  • TastyBits

    @Dave Schuler

    … Shorter: solutions that work in Denmark will cost enormously more if we try to implement them here. …

    To some, I suspect that this is a feature not a bug.

  • A new poverty measure has seen light of day, and guess what? California now leads the list of poorest states! I wonder how that happened? Must be Arnold’s fault.

  • Never fear! I found a Spiderman bandana today at Dollar General for $2. I’m on it.

  • California now leads the list of poorest states!

    The plan is working. California and Mexico are converging.

  • Wow, i just looked at OTB. It’s almost exclusively about the White People Problem of the GOP. I guess nothing else is happening in the world….

  • Andy

    The huge uptick in initial weekly unemployment claims is also being blamed on Sandy, though a couple of sources indicate that the big surge in claims came in OH and PA. If that’s true that kind of kills the sandy theory.

    Anecdotal to be sure, but my in-laws in Cleveland just got their power back two days ago. On the other hand, I heard on NPR that some Chinese company announced it wouldn’t file its earnings report on time because of Sandy – It was such a monstrous storm that Beijing was apparently affected 😉

  • Andy

    Wow, i just looked at OTB.

    Well, there’s your problem!

  • Well, there’s your problem!

    :\

  • Andy, on the econ blogs blaming { WHATEVER } on the weather has just become schtick. This January there will be a snow storm somewhere. This will be cited as the reason # X comes in below expectations – unexpectedly, of course. Because it has never ever snowed in January in New England before.

    And prior to any big storm coming through there’s always a rush to purchase stuff. (I’m speaking here of the retail numbers.)

    (Note that the miss today was much higher than the economists were expecting. The economists apparently hadn’t been informed that a big storm had taken out NY & NJ. Of course the President is just finding out about it today, so why should I expect the economists to be better informed?)

  • PD Shaw

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

  • steve

    Living in PA, we had no power for three days where I live. There are still folks in the area without power.

    Query-How many weather events close the NYSE? How much do we really need the stock market to function for economic activity? Never really thought that much about it. If the market being closed for a couple of days makes no difference, then those guys really are overpaid. Let’s have capital gains on stock sales count as ordinary income.

    Steve

  • Of course the President is just finding out about it today

    Perhaps this is unduly critical of the president but what’s he running for? I wonder if he understands what kind of resources a presidential visit and overflight consumes? Don’t the police, etc. have anything else to do?

    Honestly, I’m finding it difficult to assess how much trouble New York is in. The coverage of the aftermath of the storm is remarkably light in New York papers, at least when I looked at them. On the one hand I hear reports that a million people still have no power; on the other the papers are maintaining radio silence.

    I think it’s perfectly responsible for Gov. Cuomo and Mayor Bloomberg to be in the thick of things and I’m also glad that the president is staying on top of what’s going on there. 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?

  • I think its your in-law’s problem

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

  • Gleaning through the chaff, you can find out a lot about what’s going on in NYC through the Occupy Sandy facebook page.

    Specific churches in need of supplies, that sort of thing.

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

    Works for me.

  • I think it’s perfectly responsible for Gov. Cuomo and Mayor Bloomberg to be in the thick of things….

    Absolutely, but are they? From what I can tell it’s making me think that they need to make Jeb Bush dictator of New York for six months. Now that man knew how to handle disasters. (You’ll even find Dems down here admitting that they miss Jeb when they’re honest.)

  • Incidentally, when we had the four hurricanes hit in six weeks in 2004 Jeb was everywhere. No question who was in charge and who was going to kick ass if ass needed kicked. And no talk of goddamned commissions while the crises were still going on, either. Is Bloomberg doing anything, or is he still just making certain that people don’t give food to homeless shelters because the food might be too fatty or salty?

    Back to 2004. At some point the President showed up. He was at some relief station handing out water to displaced storm victims the day before the first debate that fall. Bush probably secured Florida that day (though it wasn’t really in doubt that year) but it cost him the first debate.

    And he learned from that, that Presidential visits are disruptive. Thus the flyover the next year with Katrina. Which proved that nothing he could do would be considered correct: slammed if he shows up, slammed if he doesn’t show up, slammed if he takes the eagle-eye view. It’s the exact opposite of how Obama is treated.

  • 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

    @steve

    … 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.

    Steve

  • 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

    @steve

    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.

    Steve

  • 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.

    Sheesh….

  • 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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