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Thread: weekend commentary - one official measure of consumer confidence that can't be faked

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    Default weekend commentary - one official measure of consumer confidence that can't be faked

    State Sales Tax receipts are dropping like a stone, with only one possible cause - people in those states are spending less money !

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    I'm waiting to read about the drop off in income tax collection as home values decline...

    I'd be more inclined to believe it's all the FB's with no cash to spend than an issue of confidence.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    I'm waiting to read about the drop off in income tax collection as home values decline...
    Well, this year's legally required reassessments are already causing declines in state and local PROPERTY TAX receipts.

    However, income tax receipts are rising as a result of home values declining ! Ironic as it seems, when a mortgageholder goes delinquent and decides in conjunction with the lender to agree to a 'short sale' to avoid bankruptcy, any amount of outstanding principle balance that is 'forgiven' by the lender counts as additional taxable income to the delinquent mortgageholder !


    As far as sales tax receipts go, these are directly derived from the amount of money being spent for 'retail' purchases. Thus if sales tax receipts are down it is because 'retail' purchases are down, pure and simple.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    The article you post refers to California sales taxes, not the nation as a whole. I know that North Carolina's sales tax collections are down somewhat because the rate was reduced. That was done because NC is running a significant budget surplus. At best the article is indicative of the condition of the California economy. Frankly, California's economy is so screwed up that I am not all that surprised that it would be trending down. The real question is does this portend something for the greater economy? Or is it just California?

    To answer my own question, I think we are headed for a national recession. Home sales have peaked as have home prices. Banks are less willing to lend money to the consumer market. Wages have not kept up with productivity gains, so we may have a couple of good quarters ahead. But, that is most likely temporary. After wages catch up with productivity, I expect unemployment to increase. The good news is corporate profits are still strong. Banks may begin lending to corporate customers, prolonging the current recovery. However, with the Bush dividend tax cut, corporations, at least "C" corporations are less likely to borrow money than in times past unless the interest rates are really low. Thus banks find themselves in something of a profit squeeze. They don't have a lot of good consumer loans to make and the "C" corporations will want to bargain for much better rates or they will seek equity financing. (To be fair the more equity financing done, the better for me personally as I work for a VC and am heavily invested in equities.) Thus, I think the banking industry is in for a tumble along with the home mortgage industry. I think a recession will start by the fourth quarter of 2007.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    The real question is does this portend something for the greater economy? Or is it just California?
    California serves as a 'leading indicator' due to the state's real estate bubble, high state and local tax rates etc. I would speculate that other states are not immune, but probably won't be seeing such dramatic changes, and probably won't be seeing such effects so early in the 'cycle'.

    here's another 'alternate measure' of consumer activity from the same author that confirms a reduction in consumer spending ...



    Thus, I think the banking industry is in for a tumble along with the home mortgage industry. I think a recession will start by the fourth quarter of 2007.
    Agreed that there is an ungodly amount of toxic debt paper floating through the banking system, and that no major financial institution will escape without taking some lumps. Theoretically the primary dealer banks have the most at risk due to the trillions of dollars worth of derivatives paper they are sitting on.

    However I would disagree with your timing in regard to the 'official' start of a recession. The proverbial 'tin foil hat' crowd would tell you that most of the non-gov't massaged indices are saying that a recession has actually started with the beginning of the 2nd quarter. Of course, the 'official' numbers won't show up for another couple of months. But it is an undeniable fact that since the beginning of the 2nd quarter the US dollar exchange rate has started to fall off a cliff, which has the double whammy effect of goosing price inflation on all imported products / commodities, plus providing a strong incentive for foreign investors to liquidate their US investments before they take an even bigger hit of exchange rate losses.
    Last edited by Melonie; 04-16-2007 at 04:43 PM.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    Quote Originally Posted by Melonie View Post
    But it is an undeniable fact that since the beginning of the 2nd quarter the US dollar exchange rate has started to fall off a cliff, which has the double whammy effect of goosing price inflation on all imported products / commodities, plus providing a strong incentive for foreign investors to liquidate their US investments before they take an even bigger hit of exchange rate losses.
    The European view is the strength of the Euro is a result of an improving economy in Eurozone and finally a decline in Europe's famously high unemployment rates. Thus the Euro politicians are not complaining about the exchange rate. Having just returned from Europe, I can see their point of view. For the first time in a long time there are "help wanted" signs out. Some in the US view the strengthening Euro as helpful to their export business, and it makes US financial services which are priced in US$ more competitive. There is lots of data pointing in different directions. I am just not sure that a recession is on yet. But, it's on the near horizon.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    The alternate analysis re the weak dollar and strong Euro is that A) the Chinese have now stopped recycling their US dollar trade surplus into US gov't bonds and are purchasing Euro denominated assets and gold instead, and
    B) that Iran is now trading over 50% of its exported oil and gas in currencies other than the US dollar, which eliminates the need for hundreds of billions of dollars to be 'purchased' on world currency markets.

    I agree that the falling US dollar can be positive for some US businesses and investors. But these are typically related to US exports or 'offshore' business operations. Anything involving US imports, and particularly average Americans buying imported gas and oil, imported cars and appliances and electronics, are going to see an immediate negative impact on their budget.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    Quote Originally Posted by Melonie View Post
    I agree that the falling US dollar can be positive for some US businesses and investors. But these are typically related to US exports or 'offshore' business operations.
    The US is the world's third largest exporter behind Europe and Germany (why Germany is counted separate from Europe is not clear to me, but it is). US exports for 2006 were about $1.024 trillion, or about 7.7% of the US economy. As export related jobs tend to pay well, it is worthwhile to promote. In fact, there are 2.3 million export related manufacturing jobs in the US and 2.7 million non-manufacturing export related jobs in the US. Those 5 million jobs represent about 4.5% of all civilian employment in this country. So, export impacts are not just offshore business operations but real live employment here.

    As I said, there is lots of data and lots of ways to view it. Nothing I have seen convinces me we are in a recession yet, but nothing convinces me we won't be in one by the fourth quarter.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    Quote Originally Posted by Zofia View Post
    As I said, there is lots of data and lots of ways to view it. Nothing I have seen convinces me we are in a recession yet, but nothing convinces me we won't be in one by the fourth quarter.
    I'd agree we are not technically in a recession at the moment.

    I'm going to say a complete melt down of over half the real estate markets in the US during what is supposed to be their busy season will put us into one right around August.

    Why August? It's the second anniversary of the national real estate market's peak, and you know what the means... resets.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    ^^^ I would point out that while there are indeed a significant number of US jobs that are related to exports, far MORE jobs have already been lost as a result of cutbacks in real estate related jobs i.e. construction, real estate sales and brokerage, mortgage lending, housing related durable goods production and sales etc. Even a 50% increase in export related US jobs is not going to be able to counterbalance the real estate related job losses.

    I would also point out that many US export related jobs are in decline - with agricultural exports immediately coming to mind due to the ethanol demand cutting into available agricultural surpluses that can still be exported. Additionally I would point out that just because a US based business participates in the export market, this is no guarantee that the US employment by that business will grow (or even remain constant) if export opportunities grow with a weakening dollar. These businesses are just as likely to outsource services or to relocate production facilities overseas as any other business, meaning that while levels of US export business activity may indeed increase this may actually occur with a simultaneous reduction in US employment.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    Quote Originally Posted by Melonie View Post
    Additionally I would point out that just because a US based business participates in the export market, this is no guarantee that the US employment by that business will grow (or even remain constant) if export opportunities grow with a weakening dollar. These businesses are just as likely to outsource services or to relocate production facilities overseas as any other business, meaning that while levels of US export business activity may indeed increase this may actually occur with a simultaneous reduction in US employment.
    Is John Deere going to relocate tractor production from the US to someplace with a more costly currency? Of course not, they will increase production here to take advantage of the lower dollar.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    ^^^ funny you should choose John Deere, as they already have a head start shifting manufacturing offshore and partnering with Hitachi for design and R&D work ... from

    (snip)"Today, industry-leading investments in R&D keep Deere on the cutting edge of innovation across its four major product lines, while continuous system improvements and technology investments keep its value chain and manufacturing processes lean, flexible, and profitable. Deere gets globalization—if robotics, offshore manufacturing, or joint venturing with Hitachi make business sense, do it. "(snip)


    In an objective analysis, a potential 20% gain in competitiveness from a devalued US dollar doesn't come close to competing with a 1000% labor savings and a 500% reduction in environmental compliance costs by manufacturing in Asia. Throw in 1/2 price electricity from unscrubbed coal fired power plants, zero employee benefit costs etc. and it's a no-brainer that Deere has already shifted production of their 'high volume' products to Asia (i.e. small farm tractors and garden tractors). Thus the true question is whether or not a 20% competitiveness improvement from a devalued US dollar can justify moving these design and manufacturing operations BACK to the USA ... with the obvious answer of NOT !

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    Quote Originally Posted by Melonie View Post
    In an objective analysis, a potential 20% gain in competitiveness from a devalued US dollar doesn't come close to competing with ....
    You compare apples to oranges. We can continue this ad infinitum and it will lead no where. I am truely sad that you see only the gloom in every statistic and situation.

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    Default Re: weekend commentary - one official measure of consumer confidence that can't be fa

    ^^^ well, every financial 'crisis' also represents a potential 'opportunity'. Indeed John Deere as a corporation, and John Deere stockholders, will see an improvement from a US$ decline. It was only the (former) US John Deere factory workers that will be left out.

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