Friday, March 12, 2010

Stimulus About To Wither On Vine; A look At February Retail Sales

Jed Graham writing for Investor's Business Daily says something I have been saying for several months: Extra Stimulus Aid Fuels Sales, But Fiscal Flood Cresting Early http://www.investors.com/NewsAndAnalysi ... ?id=527049

In gauging the economic recovery's trajectory, you shouldn't forget that this is not a normal tax season.

People who don't pay income tax are getting an extra $30 billion in refundable tax credits thanks to the Recovery Act, the Joint Committee on Taxation has estimated. Based on the timing of tax refunds in past years, well over half of that has likely been paid out already.

Mark Zandi, chief economist at Moody's Economy.com, said the extra serving of tax-season cash to modest-income families "helps explain the somewhat surprising strength in retail" in February.

Excluding AMT relief, Zandi figures peak stimulus hits this month or next.

Just how big of a boost will this extra cash provide? If the economic impact came in a single quarter, CBO's analysis implies that it would hike GDP by 0.6-1.5 percentage points. In all likelihood, the effects will be over a longer period.

Retail Sales Mirage

"I think we are seeing the effects (of Recovery Act tax refunds) on retail sales and spending," said Allen Sinai, president of Decision Economics.

Same-store sales at major retailers rose 4.1% in February, the best year-over-year gain in over two years, Retail Metrics said March 4.

January 2010 sales were nothing to brag about and February 2010 same store sales will not be either.

February 2009 sales were horrible so year over year comparisons will be extremely easy. Moreover, the whole same store sales methodology is flawed to begin with on account of closed stores, and even closed chains like Circuit City. For details, please see Retail Sales Rise: Where? Let's Take a Look; Expect Nothing Less Than Panic http://globaleconomicanalysis.blogspot. ... -look.html

Finally, one has to take into consideration favorable for spending income tax returns.

In spite of that, tax collections are down although many states have raised sales taxes. That's what really matters.

Moreover tax credits for houses have run out of stimulus effect as has cash-for-clunkers.

Expect actual tax collections (reported later) will likely fall short regardless of what the report says.

I am on the road now. The above was written ahead of Friday's advance sales report.

Addendum:
A quick post before I hit the road returning home.

Bloomberg reports U.S. Stocks Advance as Retail Sales Bolster Economic Optimism http://www.bloomberg.com/apps/news?pid= ... 3AExLabzKA

U.S. stocks rose, keeping the Standard & Poor’s 500 Index at a 17-month high as an unexpected increase in retail sales added to evidence the economic recovery is strengthening.

Google Inc. and Target Corp. climbed more than 0.4 percent after the Commerce Department said purchases at U.S. retailers increased 0.3 percent last month, compared with a 0.2 percent drop forecast in a Bloomberg survey of economists. National Semiconductor Corp. rose 1.3 percent after the chipmaker forecast better-than-estimated revenue.

“People are looking to buy stocks,â€