Paper Money - A US Real Estate Bubble Blog

Conspicuous Correlation: Retail Sales November 2008

Posted: 12 Dec 2008 09:05 AM CST

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing a decline of 1.8% from October 2008 and 7.4% decline from November 2007 on an aggregate of all items including food, fuel and healthcare services.

Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales also experienced another significant decline falling 5.07% compared to November 2007.

Further, adjusted for inflation, "real" discretionary retail sales declined 7.60% since November 2007.

On a "nominal" basis, there appeared to be "rough correlation" between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following charts show my initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the "discretionary" retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

One problem with this initial analysis is that both retail sales and the S&P/Case-Shiller Composite index are reported in "nominal" (i.e. non-inflation adjusted) terms and thus result in a somewhat skewed view especially for the retail sales data.

As you can see from the above charts (click for larger version), adjusted for inflation (CPI for retail sales, CPI "less shelter" for S&P/Case-Shiller Composite) the "rough correlation" between the year-over-year change to the "discretionary" retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Effervescent Equity: The Federal Reserve’s Household Equity Estimate Q3 2008

Posted: 11 Dec 2008 01:45 PM CST

Today, the Federal Reserve released their Q3 2008 Flow of Funds report that showed a continuation of the historic decline to household net worth of real estate assets with particularly striking declining trend in owners' equity.

Household net worth of real estate assets declined 9.84% or $2.085 trillion since Q3 2007 bringing the change since the peak level set in Q3 2006 to a decline of 12.74% or $2.789 trillion.

Worse yet, owners' equity in household real estate assets declined 20.84% or $2.245 trillion since Q3 2007 bringing the change since the peak level set in Q3 2005 to a decline of 31.74% or $3.965 trillion.

Finally, households' percent of equity in real estate assets fell to its lowest level in at least the 52 years that the Federal Reserve has been collecting the data to 44.66%.

The charts below (click for larger) show households new worth of real estate assets, owners' equity in real estate assets and percent of equity in real estate assets since 1953.

Question(s) of The Day - Job Loss to Intensify?

Posted: 11 Dec 2008 10:02 AM CST

We are clearly at a critical point in the employment market… If the jobs reports weaken going forward, we will be well within rarely charted territory… so…

Is the worst of the job shedding behind us?

The 533K non-farm job loss in November was large… will the monthly losses grow even larger?