That Scorching Spring Rebound Is Shaped Like A Molehill

At first, 2014 was supposed to be the year of recovery; no fooling this time. Then came winter, which was both “unexpected” and seriously stifled the modern conveyance systems of the largest global economy. After that, the temporary weather was to be no match for the mother-of-all bounces in the spring, as pent-up demand was surely awaiting nothing more than clear roads and sunshine. The spring rebound, however, proved quite the molehill, so the expectations simply flow further into the calendar. Now, the second half will do what the spring did not – except that it won’t, at least not like it was promised.

What I mean by that is the ongoing sleight of hand in media narratives, where it seems like cheerleading is giving way to a kind of soft deception that is intended, seemingly, to preserve the idea of actual recovery without actually featuring it. Again, this can only be something like rational expectations tinkering – give the people some bad news but make it seem like nothing has changed.

Here is one example, provided by the tradegroup for the retailer industry. In January, the National Retail Federation issued retail sales predictions of 4.1% growth in 2014 over 2013. Six months hence, after winter and the lack of spring bounce, full year growth has been cut down, but to “only” 3.6% (note the title of the article).

NRF calculated that sales grew 2.9 percent during the first half of the year and are expected to grow at least 3.9 percent during the second half. The numbers include general retail sales and non-store sales, and exclude automobiles, gasoline stations, and restaurants.

“No retailer was immune to the doldrums witnessed during the first quarter, and as a result, the year’s growth trajectory was impacted,” said NRF President and CEO Matthew Shay. “That said, there is plenty of evidence that the second half of the year will be better for the industry as consumers begin to feel more optimistic about their spending decisions.

So the CEO, blames the winter but doesn’t mention the markdown in the second half, making only a relative change in standards as the second half will not be as robust but “better” than the first. That’s a different message entirely, but coded very carefully here. Again, in January they expected 4.1% for the entire year, but now only expect 3.9% in the second half – lower than the expected yearly growth rate only six months ago and not a trivial downward adjustment given the persistent happy faces.

Back in that January forecast, the NRF believed this:

Economic growth is expected to be above its long-term historical average. Early estimates for growth in the economy as measured by real GDP could fall between 2.6 and 3 percent, a noticeable improvement from the estimated 1.9 percent rate for 2013, and the fastest pace in the past three years.

Not only will there not be “above long-term historical average” growth this year, it will take a miracle of BLS proportions to even keep growth close, but ultimately under, last year. So now they are trying to blame the weather for the downgraded forecast, thereby sidestepping lower assessments of even that vaunted second half.

“The severe weather and other factors we experienced earlier this year have taken their toll on retail, but most of those problems are behind us,” said NRF Chief Economist Jack Kleinhenz. “A second look at our forecast shifted our expectations slightly, but it’s important to note that the outlook is positive. Sales are growing and we expect them to continue at a moderate pace.”

The reason for that beloved optimism, or as CEO Shay put it, ““And though we maintain realistic expectations of retail sales growth in 2014, we are optimistic that the chances for a stronger economy still exist,” is “job growth.” That is hard to take very seriously not only because those “realistic expectations” were anything but in the first half, but also because it is the purported “job growth” that underlays all this sanguinity and unshakable faith.

Reading between the lines, we get a downgraded assessment that was never expected but all of it is to be set aside because the Establishment Survey is all that matters. If you actually pay attention to the trajectory here, the changes are quite meaningful and serious. Growth expectations are being downgraded without actually having to state that they are being downgraded.


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