Summary
Retails sales falling in May are indicative of the state of the economy and continue a 3 year trend. Declining sales will compound political problems as tax revenues fall. Retailers will continue to experience a difficult consumer market in coming months as consumers become ever more wary of what they purchase.
Analysis
In summary, sales fell in May, as has been widely expected by most retailers. Although 31 percent of retailers claimed sales volumes had increased, 48% claimed sales volumes had decreased. One would expect some exaggeration in the sales figures released by retailers, not much different than government exaggerations in the release of economic figures, thus the situation may be slightly worse than is being given. Retailers have reported slowing sales figures for the past 3 years, and this months figures were the worst since last June 2008. Only grocery and footwear showed improved sales. Retailers expect the harsh conditions to continue.
It is expected that grocery stores would hold steady sales, as it is a given that people must eat, and I have notices significant shoe sales taking place in the past few months which would provide for an increase in shoe purchases by wary consumers. Within these sectors I would be watching the basic foods, opposed to "junk" or unnecessary foods, and I would also be watching necessary footwear versus the excessive styles and brands. If we look at the last depression for example we will see that people purchased work clothing for general use, be it blue jeans or a business suit, and I would think the same is happening with footwear. As for grocers people must eat, those who garden will garden their own foods, but for most people this is a very small percentage of what is required for a normal diet, thus staple foods should continue to sell within a reasonable range.
The economy is in terrible condition. There is no other way to say it. Quantitative easing will only result in higher inflation, and government debt is out of control. The IRS reported a decline in tax revenue in April 34% below the revenue of last year. Even worse the Fed is being forced to purchase its own debt instruments, Treasuries, which will eventually result in more quantitative easing, and even higher inflation.
Government officials are now talking about a VAT or sales tax in the US. This will have the effect of further reducing retail sales, and therefore reducing tax revenue even more. Politicians never learn from their mistakes, they just take more from the people to cover each mistake.
Banks are tightening consumer credit, as I predicted over a year ago. They will continue to do so. As inflation rises government will be forced to eventually raise interest rates, although with the present government this may take awhile. Consumers will be forced to cut back spending, and will be forced to reduce credit card debt. Consumers are becoming very wary of what they purchase. They will choose essentials, will price shop, will learn to make and grow at home, and will cut back on luxury and nonessential merchandise.
The difficulty we are facing is what is called stagflation. A combination of depression and hyperinflation. First comes the depression, and many economists are looking at a waterfall effect, some worse than last year, as soon as the end of the summer or early fall. Some say it may hold off until winter. Hyperinflation will not begin until after the markets stop falling, and real depression sets in. At that time the vacuum effect on quantitative easing will have ceased, foreign investors will be reducing dollar holdings a trend we see now, and hyperinflation will begin.
Retailers will have to adjust to the new consumer demands. Consumers facing higher unemployment, and higher taxes, will be much more selective as to what they purchase. Retailers will be forced to concentrate on essentials, to offer quality at a lower price, or they will perish in the new markets, perhaps rightfully so.
I agree with the final statement of this article. "The harsh reality is consumers need good reason to part with their hard-earned cash. Demonstrating you offer value for money as a retailer, has never been more important, and marks out the true survivors."
