MacroScope

It’s become an uncanny, almost seasonal pattern over the last few years: The economy perks up as a new year kicks into gear only to flail again by the time summer comes around.

It must be that time of year. A very weak U.S. retail sales report for June forced economists to again take an axe to their already meager forecasts for economic growth this year. Stephen Stanley at Pierpoint Securities, suggests the figures are beginning to dip dangerously close to contraction.

I have been near the bottom of the range of estimates on Q2 GDP for the last month or two and it seems like we are all chasing the data lower. Before today, I had about 1% for Q2 real GDP. The awful retail sales figures coupled with somewhat higher-than-expected inventories tally takes me down to +0.6%.

As you can see, I am running out of room with regard to being above zero! I think the consensus was a little over 1½% before today.  I’ve seen some low 1%’s this morning, so I think I remain about ½% below most other estimates.

Stanley sees things staying bad in the second half of the year as well.

The economy has downshifted from muddling to near-stagnation. […]

Given how weak the consumer appears to be after today’s numbers, I am slashing my Q3 numbers as well. A week ago, I was thinking close to 2% for Q3. Now, I have about 1¼%, with most of the downward adjustment occurring in consumer spending.

One month’s data may not a trend make. Even so, this morning’s batch was pretty solid. U.S. retail sales rose 1.1 percent in February, the biggest gain in five months, and January’s numbers were revised up. Some of the rise reflected higher gas prices, but much of it appeared to be real.

The National Federation of Independent Businesses’ small business optimism index also rose, for a sixth straight month.

Eric Green at TD Securities says that as far as potential revisions to GDP forecasts, he’s keeping his powder dry for now:

Better-than-expected retail sales data eased recession fears today but not by much. The lukewarm reaction from many analysts doesn’t exactly paint a clear picture for the economy.

“I think the number is OK. Sentiment had gotten so negative that a more mediocre number like this isn’t terrible,” said James Dailey, portfolio manager for TEAM Asset Strategy Fund.

Retail sales data beat expectations but an analysis by Anooja Debnath and Emily Kaiser points out that even the expectation water-mark is not as clear as it once was. Economic forecasts are all over the map and the consensus forecast does not necessarily represent what most economists think.

The terrible U.S. retail sales  racked up in December — called a “horror show” by ING — were all the more gruesome because of the sales on offer to customers in the run up to Christmas. Shops weren’t exactly giving things away, but their generosity knew few bounds.

Consider the experience of one visitor to a heaving handbag department in a Maryland Macy’s.
 
    Customer: “I would like to buy this handbag please. Oh dear, it appears to be the only one that is not on sale.”
    Salesman: “So it is. Tell you what, sir, I’ll give you 15 percent off anyway.”

Happy customer, happy new handbag recipient, unhappy sales figures.

Florsheim mens shoes are reasonably classy. They were imortalised, for example, by snappily dressed Jack Nicholson in Roman Polanski’s “Chinatown“. He was rather distressed, film buffs will recall, by what a flood drainage canal did to them.

So it was something of a sign of the times last week that a visitor to a normally genteel Florsheim shoe shop in a Maryland mall got the hard sell from two salesman. Simply popping in to ask a question, our hero was essentially told — firmly — that he could not afford to leave without purchasing some footwear. The price was right, he was told.

No shoes were purchased, as it happens, but the pitch was nonetheless enlightening as a sign of desperation. The mall was relatively empty, despite cut down sales at nearly every shop. Very few people were buying, judging by the shopping bags. Sales staff everywhere looked pretty lonely.