Thursday, November 20, 2008

Like Falling of a Cliff

We know that retail sales are down, way down. But looking at the following graph shows how bad things really are. Remember the growth was fueled by the ever-rising equity. Just trade that equity for consumption. It only appeared to go one way. All homeowners had wealth. If you were 100% financed - just wait a few months and you had equity. And that equity could work for you by providing the goods and services you deserved.

Canada Vs. U.S. Total Retail Sales
This graph was in an article titled Consumer spending in the U.S. takes a tumble, Canada set for a fall from the Daily Commercial News. Here are a few snippets -

The graph [above] shows how closely aligned are retail sales in the United States and Canada. Year-over-year retail sales in both countries can vary to some degree over short periods of time, but the trends rarely differ for very long or to any significant degree of magnitude. This is not good news for Canada since U.S. retail sales have been announced for a period two months in advance of Canada’s and they are sinking into a deep pit.


It should also be added that consumer spending - for which retail trade is a leading indicator - accounts for approximately 70% of Gross Domestic Product (GDP) in the U.S. and 55% in Canada. The lower figure for Canada is due primarily to the greater importance of foreign trade in national output.

U.S. retail trade numbers were already trending down before September. But over the last two months, the decline has been dizzying. Since the start of this year, the U.S. economy has jettisoned 1.2 million jobs. Companies in a variety of sectors are announcing layoffs.

The financial crisis that saw credit dry up has meant that consumers have hunkered down to an extent not seen in many years. Plus existing home price declines have further hurt confidence and removed home equity as a financing option. Stock market price declines have been the final straw, cutting into savings through mutual fund and pension fund accounts.

At the start of the downturn there was a belief that the global trading would deter a significant U.S. fall. Rather than preventing a fall, it seems that the U.S. is taking everyone else with us.

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