Barry Ritholtz over at The Big Picture takes another shot at the bears who remain stuck inside their negative-feedback confirmation-bias thing, this time chastising them for missing a strong holiday sales season, where sales were up by the most in five years.
Why were the improved sales not a surprise to those people paying attention to the data? The negatives — weak job gains, housing overhang, consumer deleveraging, terrible municipal finances — were already well known all year. Even Oil over $90 was a not a big deal — it seems to have been in the $75-85 range for so long that gasoline over $3 had little shock value.
The newest data included more positives: Improving job market, equity gains, and an upcoming two percentage-point cut FICA payroll tax holiday in 2011. The 90.2% of the workforce that have jobs feel more secure (if they didn’t get laid off by now, they probably won’t). There is also a sense of widespread Recession fatigue; people are tired of living in bunkers, and are coming out to play again.
Now, we weren’t very impressed by November’s retail sales figures, because when you broke them down, adjusted for inflation and per capita spending, they were weaker than the headlines indicated. So I’ll reserve judgment on December’s as well, even if that means I risk falling into my own feedback loop.
On a side note, one thing I have to take issue with specifically if this idea that if you haven’t been laid off yet, you’re probably not going to be. Companies may not be laying people off by the hundreds of thousands anymore, so the probably qualifier qualified it well, but they’re still laying people off. I know, because I know several people who have been laid off in the past month of two. Companies are still managing their costs ruthlessly, and the best way to keep costs down is to lower headcount. I don’t see how people in general aren’t aware of it, either.
Michael Panzner over at Financial Armageddon points to another reason why those Christmas sales looked so good: transfer payments.
One of my bigger mistakes, however, was underestimating the extent to which government transfer payments — unemployment insurance, food stamps, social security benefits, etc. – aided consumer spending and, by extension, the overall economy. As Global Economic Intersection estimates in “Personal Transfer Payments and GDP,” the accumulated value of “extra” transfer payments Americans received from 2008 to 2010 — that is, the amount over and above the long-term trend — worked out to about $569 billion.
That is not an inconsequential sum. We’ve been harping on the issue of transfer payments for some time. The government sends some money people’s way, people spend it, and everything looks all peachy again. Meanwhile, unemployment’s high and stagnant, and wages are broadly flat. This was the real reason people were so nuts over the tax-cut debate, a very real fear that any added burden on the consumer will just torpedo the recovery. It’s why the White House caved.
We do not have a self-sustaining recovery as long the federal government is underwriting the populace’s spending habits to such an extent. We have government-induced economic activity.
I still think that the most important metrics to follow, indeed the only ones that really matter, are jobs and wages. The rest is noise. For this recovery to be anything more than smoke and mirrors, you’re going to need to see employment and wages rising, steadily, month after month, for some time. I’m not talking about 40,000 jobs a month and a tick higher in wages. I’m talking about hundreds of thousands of jobs per month, and wages that are well outstripping the inflation rate.
When I see those things, I’ll let my guard down.
