Mish's Global Economic Trend Analysis

Anecdotes from Florida - "Hell is on the Way"
Three Mish Segments on Tech Ticker, on Stimulus, Retail Sales, the Markets, Alternatives
Did Retail Sales Rise or Did Tax Rates Go Up?

Anecdotes from Florida - "Hell is on the Way"

Posted: 09 Jul 2010 01:51 PM PDT

Charlie, a Florida vendor, had a few comments regarding vendor sales. From Charlie ...

Hello Mish,

"That's all folks" is correct and right on the money.

I have a vending business here in Florida. I service manufacturing and many general businesses. All are laying off workers. I have machines that were taking in 100.00 plus dollars a week that are now doing only 5.00 per week.

This drop off is now much worse than in autumn of 2008.

Mish, please tell people to save their money because hell is on the way.

Charlie

Charlie was responding to Following Yesterday's Hype of Fastest Growth in 4 Years, June Retail Sales a "Mixed Bag"

If you are properly reading the signs, this is what you see ....

That's All Folks

Image courtesy of clipart for free.

Given the headwinds in this economy, the lack of jobs, the falling consumer confidence numbers, falling new home sales, and falling leading indicators, today may be the last hurrah for retail sales for quite some time.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Three Mish Segments on Tech Ticker, on Stimulus, Retail Sales, the Markets, Alternatives

Posted: 09 Jul 2010 11:30 AM PDT

Yesterday I recorded three segments on Tech Ticker from downtown Chicago, hooking up with Joe Weisenthal at Nasdaq.

From Yahoo!Finance Michael "MISH" Shedlock: Stimulus Will Fail Like It Always Does

There's no hotter debate right now than stimulus vs. austerity, as folks like Paul Krugman and even Barack Obama call for more spending to fix the economy.

Michael "MISH" Shedlock is not having any of it, arguing that the financial pump has failed, and that the only way to get the economy back on track is to pursue a policy of less government, and less spending, with a special focus on reforming pensions, public sector unions, and other institutions that drain the government of its resources.

As evidence: Japan. The country has now seen multiple decades of recession despite massive pumping on both the fiscal and the monetary side.

But at least Japan hasn't had a debt crisis yet, right? The key word there, says Mish is "YET." The fiscal situation in Japan is getting more and more tenuous, and it's no sure thing that the market will retain its confidence in the Japanese government's ability to finance its debt. And of course the same thing could happen here.

But for now in the US the big risk is deflation, which you can see in housing and other economic categories. Spending won't solve this problem; actual economic adjustment is what's needed to start growing again.

There are two more short segments that play back-to-back if you click on the top link.

Thanks Joe, that was a lot of fun.

As a followup to the discussion on retail sales, please consider Did Retail Sales Rise or Did Tax Rates Go Up?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Did Retail Sales Rise or Did Tax Rates Go Up?

Posted: 09 Jul 2010 08:26 AM PDT

In response to Following Yesterday's Hype of Fastest Growth in 4 Years, June Retail Sales a "Mixed Bag" a couple of people challenged me on retail sales figures, notably a statement that state sales tax collections were still down.

Let's take a quick look at data from a few key states followed by a closer look under the hood as to what is really happening and why.

California - Statement of General Fund

Retail Sales and Use Taxes

May 2009 $3,151,394,000
May 2010 $3,546,564,000
+12.54%

New York - Department of Taxation and Finance

Retail Sales and Use Taxes

May 2009 $713,257,000
May 2010 $757,297,000
+6.2%

Texas - Texas Sales Tax Collections, Retail Establishments

May 2009 $890,080,000
May 2010 $905,600,000
+1.7%

Those are three huge states and sales tax collections went up in all of them. Did retail sales actually go up or did something else happen?

States Raise Taxes

The Center on Budget and Policy notes Tax Measures Help Balance State Budgets.

In 2009, 12 states have increased sales tax revenues by such means as raising rates, expanding the tax base to cover previously untaxed goods and services, and administrative changes. The following sales tax increases occurred:
California enacted a temporary 1 percentage point increase in the sales tax rate, which is expected to generate about $4.5 billion in fiscal 2010.
The sales tax was extended to the sale of tobacco products in Colorado. The state also enacted legislation temporarily reducing the rate at which it reimburses retailers for collecting sales taxes. These measures will generate nearly $70 million in the coming fiscal year.
Kentucky extended the state's sales tax to include alcoholic beverages. The change will generate about $52 million each year.
As part of a large package of tax changes, Maine expanded the sales tax to include amusement parks and sporting events and a range of maintenance and service transactions including auto repair and dry cleaning. (The package also replaced the state's graduated income tax structure with a flat 6.5 percent rate plus a 0.35 percentage point surcharge on income over $250,000.) In total, compared to current law, tax revenues will be modestly higher in fiscal 2010 as a result of these changes.
Massachusetts raised about $760 million in fiscal 2010 by increasing the sales tax rate by 1.25 percentage points to 6.25 percent. An exemption on alcoholic beverages was eliminated, generating about $79 million in new revenues this year.
In Nevada, the sales tax rate was temporarily increased to 6.85 percent from 6.5 percent. This change will raise revenues by $280 million over the next two years.
New York raised sales tax revenues by about $35 million by taxing a broader range of companies previously selling tax-free over the Internet, and certain types of transportation services like limousine and car hires.
Rhode Island enacted legislation requiring certain companies to collect sales taxes on goods purchased over the Internet.
Tennessee extended the sales tax to include software maintenance contracts and limited an exemption on computer software. These changes will generate about $10.5 million per year in new revenues.
Vermont expanded the sales tax to include liquor and digital downloads, raising over $3 million in new revenues in fiscal 2010.
Washington State eliminated a sales tax exemption on hybrid vehicles and enacted legislation designed to curtail abuse of certificates that allow businesses that buy products for resale to avoid paying the retail sales tax. These measures will increase sales tax revenues by about $70 million.
Wisconsin entered the multi-state Streamlined Sales and Use Tax Agreement (SSUTA) — a compact that simplifies sales tax collections for participating businesses. The state also altered its method for taxing prewritten computer software and expanded the sales tax to include digital products, such as music and video downloads and subscriptions to online periodicals. The amount of sales tax revenues that retailers are allowed to retain for administrative expenses was capped at $1,000. The state eliminated the ability of certain parent companies to avoid paying sales taxes on purchases made by subsidiaries. Sales tax revenues will rise by nearly $60 million in fiscal 2010 as a result of these actions.

The above document was written July 9, 2009. There a few additional things that have happened since it was written: A big tax increase in New York City, other sales taxes hikes in New York, a huge sales tax increase in Los Angeles county California, sales tax increases in North Carolina, and no doubt many others that I missed.

Multiple California Tax Hikes

Please consider California needs to refigure its taxes

April 01, 2009

Today, April 1 -- no fooling, unfortunately -- Californians will see a full-cent increase in the nation's highest sales tax rate, to 8.25%. But no one in Los Angeles County will pay that little. County add-ons already in effect mean that most buyers of clothes, books, electronics, automobiles and other hard goods, plus food served in restaurants, will now pay 9.25%. Add another half-cent in Avalon, Inglewood and El Monte, where voters tacked on local levies, and even more in Pico Rivera and South Gate for a stunning 10.25%. And that's just until July 1, when sales taxes rise yet another half-cent countywide to follow the voter dictate of November's Measure R tax for transportation.

Catch your breath and add it up. In July, Los Angeles County sales taxes will come in at 9.75%, and 10.25% and 10.75% in a handful of the county's smaller cities.

Vehicle license fees -- the "car tax" that swept Schwarzenegger into office in the anti-tax recall of Gov. Gray Davis -- will rise from 0.65% of the vehicle's purchase price (the value is adjusted downward annually when registration is renewed) to 1.15% beginning May 19. State personal income taxes rise this year as well.

Admittedly May vs. May will be on a same tax comparison for most of that. However, Measure R does tack on .5% for LA county.

One certainly would expect sales tax collections to rise with all of that (at least for a while). Let's see how sustainable it is.

New York Retail Sales

New York retail sales are up 6.2%, or are they?

Please consider NYC Sales Tax up to 8.875%

August 1, 2009

New York City shoppers will have to dig a little deeper into their wallets. The city raised the sales tax Saturday from 8.5 to nearly 9 percent.

It's the first, permanent tax hike in more than 35 years.

The city upped the tax to counteract economic woes brought on by the recession. City officials hope the increase will raise an additional $950 million a year in revenue.

NYC sales taxes went up by 5.8 percent in August 2009. May 2010 vs. May 2009 New York sales tax comparisons do not factor in the increase solely due to that tax hike.

Also note that according to the CEPR article, "New York raised sales tax revenues by about $35 million by taxing a broader range of companies previously selling tax-free over the Internet, and certain types of transportation services like limousine and car hires."

So, one must factor in an additional $35 million annual in New York internet-related revenue and a NYC sales tax increase estimated to bring in $950 million annually.

May over May sales tax revenues went up by $44 million.

Did New York retail sales go up, or down?

New Jersey Sales Tax Collections

Please consider N.J. sales tax revenues show continued dips

Sales tax collections are projected to remain weak for the next 15 months, contributing to a continued fiscal malaise in debt-burdened New Jersey, according to a nonpartisan budget analysis to be made public today.

The Office of Legislative Services tax and revenue outlook, which was obtained Tuesday by The Associated Press, shows tax revenues could be $82 million shy of projections for the final three months of this fiscal year. Revenues could be down about $168 million from the governor's office projections for the fiscal year that begins July 1, the analysis shows.

The projections show much of the revenue shortfall coming from continued weak sales-tax collections.

Sales tax collections are expected to grow a modest 4.4 percent over the next fiscal year, coming off a historic multiyear decline. Between June 2008 and December 2009, sales tax collections declined for 19 straight months, Rosen said. The worst 10 months — between November '08 and last August — the average monthly decline was nearly 12 percent.

That was written in April of 2010.

After 19 consecutive months of sales tax declines, at some point sales tax collections will rise, but one must ask a couple of questions "Is the rise really meaningful and will the expectations even come to fruition?"

Texas Retail Sales - June 2010

Here is the clincher. It's from July 8, 2010 regarding June tax collections.

Please consider Texas sales tax revenue rose 2.2 percent in June, third straight increase

That headline looks promising. However, the devil is in the details.

Texas sales tax revenue rose 2.2 percent in June, but collections from the all-important retail sector were down from the year-ago level, state Comptroller Susan Combs said Thursday.

"While overall economic activity is no longer contracting, a resumption of solid growth in sales tax collections is not yet in evidence," she said.

Sales tax receipts are a major source of funding for the state and local governments. Texas leaders are projecting a budget gap of more than $11 billion when legislators reconvene in 2011 to approve a new two-year budget.

State comptroller Susan Combs said "collections from the all-important retail sector were down from the year-ago level".

Retail sales are down, but sales tax revenue is up? How? A rise in Texas Use Taxes seems to be in the answer.

Of the three states analyzed in detail above, Texas is the only one that did not significantly raise taxes. Is Texas that far out of the norm? I think not, and I do not know about any special sales taxes at city or county levels, or user taxes.

By the way, how many cities, states, and counties had Gas Tax Hikes? Special Hotel Taxes? Cigarette Tax Hikes, Alcohol Tax Hikes? User Fee Hikes of all sorts that show up in the sales tax collection bucket?

Same-store-sales, tax hikes, user fee hikes, special taxes, etc., all combine to paint a misleading picture of what is really happening with retail sales. Because of those tax hikes, state tax collection comparisons can be as misleading as same-store-sales unless you are very careful to factor in what is really happening.

Still think retail sales are up? If they are, it's not by much and it's only in comparison to amazingly weak numbers from a year ago.

To top this picture off, it took $trillions in stimulus just to finally stabilize (at best) retail sales. The key question everyone should be focusing on is "What's Next?"

Next Shoe is About to Drop

Looking ahead, it is far more important to figure out where the economy is headed in regards to retail sales than to get sidetracked in a debate on tax collections. That especially applies to those who did not even realize the need to factor in various (and massive in some places) tax hikes and user fees.

Whatever rise there was in retail sales (if any), it has come too late to matter given the current enormous mess in state budgets. Moreover, please note that states are still hugely in trouble after siphoning off huge tax increases.

Structural weaknesses are many, and signs show the next shoe is about to drop.

Consumer Consumption Inflection Point

In case you missed it, please consider Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge

Consumer credit has fallen an unprecedented 7 consecutive quarters. Moreover, credit is poised to plunge further as consumer spending plans are falling through the floor. ...

Consumer Credit This Recession vs. Last

The Contrary Investor is asking Is Consumption About To Hit A Rate of Change Inflection Point?
Maybe putting a bit of a tiny exclamation point behind the need of business spending to indeed pick up is data we saw in the consumer confidence report concerning consumer spending plans. We have not updated the following chart in some time, so here it is in all its glory.

As per the report last Tuesday, consumer plans to buy major appliances and autos hit new lows. And yes, as you'd expect post the expiration of the tax credits for home buying, plans to buy homes has retreated. Wildly surprising? Not really. But it does reinforce the message of business spending importance both in 2H 2010 and into 2011.
A tip of the hat to the Contrary Investor for explicit permission for the above snip.

Plans Match Reality

Consumer plans to buy a new home certainly matched reality as last month new home sales plunged 33% to a record low.

It stands to reason if new home sales are plunging, appliance sales will as well.

Moreover, those plans to purchase new cars looks rather ominous with all the absurd hopes pinned on manufacturing leading the cycle.

Remember this is happening smack in the face of all-time low mortgage loan rates and all-time low new car loan rates.

The Fed and Congress can only force so much demand forward before pent-up demand collapses. A 33% plunge in consumer plans to buy a new home should be proof enough.

Moreover, state layoffs loom, millions are about to lose unemployment benefits, the jobs picture still sucks, and the global economy led by Europe has stalled. Factor all of that in and the picture is not pretty.

What Will California, Other States, Do Next?

What will California do in the next wave down? Raise sales taxes to 15%?

Let's hope not, and if not, what will that do to California state public employment, retail spending, and in turn profits at retailers, restaurants, etc.?

That should not be hard to figure out, but apparently it is.

Other states, especially Illinois, wrestle with the exact same issue. In fact, all states face this key issue at a time taxpayers are already taxed to death for the benefit of overpaid pubic union workers and their ridiculous pension plans.

For those who want to look ahead instead of backwards, here is the key point ....

Retail sales gains (if any) in this Fed-sponsored reflation effort are about to crash on the rocks of reality. Attitudes have changed in a significant way. Consumers have had it with credit regardless of how cheap it appears.

Deflation Sets In

Yes folks, this is deflation.

But hey, it's a free country. If you want to believe retail sales are soaring and will continue to do so, inflation is at hand, hyperinflation is right around the corner, there is no chance of a double-dip recession, stocks are cheap, etc., then I can't stop you.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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