Two statistics out midweek captured the dire position of the US economy, despite talk of improvement.
Housing starts collapsed again in September to near record lows and US consumer price inflation saw its smallest rise in history in October as the spectre of deflation refused to go away.
And that weak level of consumer inflation followed a smaller than expected rise in producer price inflation in October.
Ahead of the biggest retailing season of the year, the post Thanksgiving pre-Christmas sales starting a week tonight, our time, there’s no good news, except for those consumers with the money; prices will be super low as deflation and price cutting forces retailers to slash costs.
The Friday after Thanksgiving in the US is known as ‘Black Friday’ because that’s when many stores start their most profitable selling period.
This year it’s starting on Thanksgiving for more and more chains because they are desperate to get customers through the door before someone else does.
Small appliances at $US3 in Target, super cheap TVs in Wal-Mart, toys at less than $US10 in most major chains.
Wal Mart breaking tradition and joining K Mart, Sears and Toys R Us in opening on Thanksgiving, where ever it can.
The US National Retail Federation estimates 2010 holiday sales will increase 2.3% to $US447.1 billion, much improved from last year’s 0.4% uptick and the dismal 3.9% sales decline in 2008. They were bullish about 2008 and 2009 as well.
Monthly retail sales have risen in four of the past five months and same store sales or sales at stores open at least a year, have been on the rise for 14 consecutive months.
But not at giant Wal Mart which continues to see weak and negative same store sales growth in the US.
America needs a healthy housing sector, both new and existing, to feed through into consumer confidence, lower jobs and higher sales in shops and for suppliers.
It’s not happening and for the fourth Thanksgiving in a row millions of Americans face the prospect (or have already experienced it) of no work, shorter hours, no home, losing their home and not being able to fill their bellies because they are on food stamps, unemployment assistance, or have exhausted all avenues of help.
And more than two million face the possibility of losing their existing benefits before Christmas if the lame duck US Congress doesn’t extend unemployment benefits, with millions more threatened next March and April.
The threat of deflation is not making life easier for anyone.
In October, core US consumer prices rose at rates that are among the slowest in modern times despite the price cutting by retailers and a growing range of companies.
The US Labor Department’s consumer price index rose 0.2% during the month after a 0.1% rise in September.
Compared with October 2009, core consumer prices rose 0.6%, the smallest yearly rise since 1957.
This justifies the Fed’s second round of spending, revealed earlier this month, and yet the still noisy critics of the move inside and outside the country ignore the rising possibility of deflation.
And eliminating volatile food and energy costs, the index remained flat for the third month in a row. (In fact a spike in petrol prices was more than 60% of the increase in the headline rate in the month.)
They also ignore the unemployment burden (9.6% officially, but more than 10.4% if those who have dropped out of the unemployment pool, are included) and the depression in housing which was again underlined with the October starts figures.
Construction on new homes dropped nearly 12% from September, to an annual rate of 519,000 units. That was the weakest since April 2009, when a record low of 477,000 was reported in the data series that began in 1959.
Analysts had forecast starts of around 600,000 units, in line with the September figure of 610,000 that was dropped to 588,000 in another worrying sign.
But the department sharply revised the September figure rated down to 588,000 from an initial estimate of 610,000.
Construction starts on single-family homes were down just 1.1% with multi family dwellings (which are more volatile and subject to commercial finance restraints) off 43.5%.
Building permits were only up half a per cent to an annual 550,000 rate, so no joy about future house starts either. (The record low is 522,000 permits in March of last year.) The October figure was 4.5% under the October 2009 figure.
And it’s not just starts that are going backwards.
US mortgage activity fell 14% last week as banks and insurers (like Fannie Mae and Freddie Mac) continue to restrict new mortgages to all but the better credit rated borrower.
Refinancings still dominate, so that’s not new sales, just churn. Government-controlled lenders like Fannie and Freddie now guarantee 95% of all new mortgages.
Housing is the main source of both household wealth and consumer credit and it’s a prime monetary transmission mechanism.
The depression caused by the foreclosure mess, unemployment, weak or lower house prices (and millions of people underwater on their mortgages), means this channel is blocked for the Fed, US government, banks and the economy generally.
So the impetus to the wider economy is spluttering at best or deeply negative at worst.
And the outlook for housing? Rotten, and that’s not me speaking, it’s a Fed Governor, the newest in fact.
Governor Sarah Bloom Raskin was appointed in September and her first major speech was last week where she forec
