We now know that the Retail Apocalypse took another trip downhill during the all-important holiday season. December reports show retail sales declined more in one month than they have since … the Great Recession. Notice what a common refrain that comparison has become.
Retail Apocalypse snowballs downhill
Retail sales dropped 1.2% month-over-month in December, the largest drop since September 2009, according to data from the Census Bureau released Thursday. The dip was broadly unexpected – consensus estimates had foreseen a 0.1% increase in retail sales for the month, according to Bloomberg data. Excluding autos and gas, which can be volatile, core retail sales plunged 1.8%. “[The] fall in retail sales in December was every bit as bad as it looks,” Capital Economics’ Michael Pearce said bluntly. The weakness was broad-based.
The plunge in data was so severe and unexpected by many that some question the Census Bureau’s credibility; but other big financial institutions are revising their outlooks substantially based on the data:
“On the back of this morning’s data… our 4Q real GDP tracking estimate likewise took a big hit, down to 3.1% from 3.7%,” Morgan Stanley’s Ellen Zentner wrote. “The report also has negative implications for consumption growth in the first quarter… Based on this morning’s results, we estimate that 1Q GDP tracking could come in as low as 1%.”
The data does fit with ongoing bankruptcies of brick-and-mortar stores:
The decline of brick-and-mortar stores isn’t expected to slow down, according to a new report. Coresight Research released an outlook of 2019 store closures Wednesday, saying there’s “no light at the end of the tunnel….” Six weeks into 2019, U.S. retailers have announced 2,187 closings, up 23 percent compared to last year. Those closings include 749 Gymboree stores, 251 Shopko stores and 94 Charlotte Russe locations…. Bankruptcies also are continuing at a rapid pace “with the number of filings in the first six weeks of 2019 already at one-third of last year’s total,” the report states…. There’s “potentially many more (closings) on the way due to companies currently in the bankruptcy process and more on the horizon,” the report states.
Carmageddon rolls downhill quickly, too
With that, let’s catch up on where the demise of the auto industry has gone since I said all of last year and the year before that it would continue to build momentum in 2018, due in large part to the Federal Reserve’s Great Recovery Rewind. Here is a quick play-by-play log like I gave for the housing market crash just to show how consistent this multi-car pile-up has been:
July, 2018: GM, Ford and Chrysler stocks all take major hits. MarketWatch reported Wolf Richter as noting that we hadn’t seen this kind of triple-punch since … the financial crisis of the Great Recession. Only this time, he noted, Carmageddon was happening during “good times.”
Graphically, it looked like this:
Ah, well. Just another car wreck, but one that looks like a hundred-car pile-up on the freeway.
August, 2018: Automakers failed to repair the damage when they slashed discounts because they could not longer sustain that path to keeping sales up. The same thing happened in the lead-up to the auto industry wreckage of the Great Recession. Incentives became the sole driver of improved sales until they became so absurd (zero down, zero payments for a year and zero interest) that they could not longer be maintained. I wondered back then what the end game was to handing out free car leases for a year like that, given how easy it would be to walk away, paying nothing for a whole year.
It wasn’t just American automakers hit in July. Nissan reported in August that its sales plunged over a 15% cliff. The Trump Tariffs didn’t help of course. Many there were who blamed Trump, including particularly the automakers. Others, however, said the problem was that incentives by automaker ran out of gas. Zero Hedge talked about incentives as a “race to the bottom,” and Bloomberg noted that the August reports “will underscore investor fears that auto sales have peaked and that, without ever-higher sales incentives to keep consumers interested, demand will continue to soften.”
November, 2018: Auto sales iced over in Europe, too. New car registrations plummeted 8.1% YoY, the third month of decline in a row. Carmakers anticipated a bad winter ahead in car sales. The decline was variously blamed on falling Chinese demand and new European emission standards. If the problem came to Europe from China, it sure couldn’t be blamed on tariffs because Chinese tariffs against US cars should have driven up purchases of European cars.
By this time, Ford had also announced it would be closing some US auto manufacturing plants.
January, 2019: GM announced immediate layoffs of 4,000 workers with many more to come. In total, “Five plants in North America are planned to halt production and 14,000 total jobs are slated to be cut.” GM said this was all about restructuring for the future, which is a nice spin on declining auto sales in the present. Don’t fall for the snow job.
Bloomberg reported, “The U.S. Auto Sales Party Is Coming to an End.”
Interest rates are on the rise. The average price of a new vehicle has hit record levels, which is pushing some buyers out of the market. And don’t let the surprise squeaker of a 2018 sales gain fool you: Automakers kept the numbers up partly by selling more cars to rental companies.
Indeed. And where did you already hear a year ago that would be happening in 2018 and beyond and be primarily due to rising interest rates and a faltering economy?
February, 2019: It only got worse. While automakers spoke of turning over a new leaf in order to focus on electric vehicles, almost all automakers reported stalling sales YoY for the start of the new year. Ford and GM, of course, had already stopped reporting monthly sales because they had long been so bad. This time, automakers blamed the multi-car fiasco on cold weather. I’ve never understood how that works when last year had exceptionally cold weather all over the northern hemisphere, too.
European and Japanese automakers did poorly, which is easily understood by the rising cost of auto loans and deteriorating consumer sentiment in the US. The cost of auto loans had moved up over the year from an average of 5% to 6.2%. But blame it on the weather if you want. I say people are getting frosted by the rising interest due to the Federal Reserve and by long-frigid wages.
Nissan saw Altima sedan sales plunge 40%. I never did think the Altima was the best car for snow, lacking all-wheel drive and a strong northern-European or American heater; so, on second thought, maybe it is just the weather. Let’s hope global warming gets here in time to save the automakers!
It reminds me of how the Bureau of Lying Statistics reports new jobs in December. One year, actual job numbers were adjusted up because the weather was unusually cold. The next year actual job numbers were revised up because the weather was unusually warm. Apparently, there is only one temperature at which actual job numbers are accurate and can be reported as they actually occurred!
If you are one of the few inclined to believe all the excuses and think the economy and interest rates have nothing to do with this heap of bent metal, then consider this February headline:
More Americans than ever are at least three months behind on their auto loans, a sign that the U.S. economy may have little growth left in the tank. The number of loans at least 90 days late exceeded 7 million at the end of last year, the highest total in the two decades the Federal Reserve Bank of New York has kept track.
Wow! Even worse than the Great Recession!
According the Fed, not all Americans are benefiting from the “strong labor market.” I guess not.
“Disappointing dynamics in sales and delinquencies in the auto sector could be a foretelling sign,”
Oh, so it can’t even all be blamed on the poor people. A lot of it, however, is blamed on the subprime auto lending market and on students who cannot afford their student loans. Always pile on the poor if you can. I remember how they did that with the housing crisis, too, until the Fed’s own study revealed that the poor played no greater part in it than the middle class and the rich. All sectors were involved. Even then, banker’s I knew continued to blame CRA loans, even when their own Fed said CRA loans did not worse than all the rest of the loans.
With auto loan delinquencies now higher than anytime in the last twenty years, guess what happens next. Anyone remember how banks did during the Great Recession? They probably won’t crash and burn due solely to the auto crisis, but they won’t have to. The auto crisis is getting plenty of support: add in a tidy little housing-market crisis, and a business-loan crisis, and you have a whole different story.
Of course, these things are still building, so nothing to worry about today. Go play in the snow!