We keep hearing about pent up demand as if it is a foregone conclusion. For some, particularly orthodox economists, it really is – it has to be. If there is no pent up demand awaiting some ephemeral trigger, then their whole theory of the economy is wrong, from the ground up. The Fed reduced interest rates throughout the economy (though it is far more complicated than that) and thus had to spur a growth impulse. We haven’t seen it yet because of the continual interference of exogeny.
Back-to-school sales were “unexpectedly” low, leading to whispers about retailers stuffed with inventory. That was fine, though, because Christmas sales were going to be the first real treat since before the panic. Even though Kmart started advertising its Christmas deals in September, that was dismissed as idiosyncratic. Then it turned out Kmart was actually emblematic and Christmas (for the retail industry) ended up as the worst since 2009.
But that, too, was fine, because holiday hangover would be less significant. So retailer expectations, as with those for overall economic growth, were tremendously optimistic until it snowed in winter.
What’s more, the expectations the chains are missing have been significantly lowered. While analysts now project retailers’ earnings fell an average of 4.1 percent, back in January they had estimated a 13 percent gain.
In the space of only three months or so, retailers went from (yet again) expecting fortune and finding instead more “mysterious headwinds.” But this is beyond the usual ridiculous affair, to miss by that much implies something far more serious. To go from +13% to -4% that quickly is an outrage, not just to the economy as it sinks further under the weight of these commandments, but also in those businesses that continue to rely on orthodox forecasts and assumptions.
Chains are missing projections by an average of 3.1 percent, with 87 retailers, or 70 percent of those tracked, having reported, researcher Retail Metrics Inc. said in a statement today. That’s the worst performance relative to estimates since the fourth quarter of 2000, when they missed by 3.3 percent. Over the long term, chains typically beat by 3 percent, the firm said.
None of this should be unexpected as it has been building for almost two years. They can disguise it under the Establishment Survey and continue to plot unrealistic extrapolations of what is really month-to-month volatility, but these trends are obvious and conspicuous to anyone not seized by the mainstream economic ideology.
As a reminder, “there are other things going on”:
“My guess is that we will see some pickup as we get into the second half of the year, but the longer we go without getting the 3% growth that many people had in their forecasts, the more concerned you have to be that there are other things going on that we hadn’t fully appreciated,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview Thursday.
Economists and analysts guessed that retailer profits would be +13%, so the underappreciation of the steady and worsening drag of monetarism is endemic. The chasm between these expectations and reality, however, leaves such little room for ignorance.
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