Every picture tells a story
It was a bad day for economic numbers and a bad day for stock markets. Retail sales plunged, Inventories are falling rapidly and export and import prices are falling.
Paint by numbers
Retail sales fell by 2.7% in December and are falling at a 25% annual rate in the quarter. Excluding the volatile food and energy portions of retail sales leaves us with the rest of retail sales in decline at a pace of 16% (saar) and that is close to what it will be in real terms. The consumers spending is about 70% of GDP and retail is about half of consumer spending. So having about 35% of the economy dropping at a pace of 16% or so is not good news. This is especially true when of the other GDP components only the government sector and perhaps commercial construction can be counted on to be positives. As I said, it was a bad day.
Beige bok is aptly named
The Fed had little to add to the panoply of data in its Beige Book release. There were no revelations. For the most part the Beige Book echos the ongoing tales of weakness we had been seeing.
As much as markets are reacting to weakness in the data du jour, markets might be reacting to the policy confusion. Yesterday featured a sharp differnce of opinion as Ben Bernanke stumped for more help for banks and as Bill Poole warned of the inevitability of inflation from the Fed's outsized balance sheet expansion. As for markets, the Tips spreads are pointing to deflation or low inflation as far as the eye can see (and far as the TIP can be tipped -that's about 30 Years). So at this point there is no market concern about inflation If there is any market concern its that markets are more preoccupied with the prospects of deflation. Right or wrong that's how markets see it.