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Consumer Price Index Primed for a Fall


Attitudes about spending have changed for good.


In the face of mounting job losses with the only real demand coming from Cash for Clunkers and other silly stimulus programs doomed to fail, it shouldn't be surprising to anyone that retail sales are dropping. Nonetheless, Bloomberg notes the following surprise: Sales Unexpectedly Decrease as Job Losses Mount.

"Sales at US retailers unexpectedly fell in July, raising the risk that consumers will keep cutting back as job losses mount and temper a recovery from the worst recession since the 1930s.

"Purchases decreased 0.1%, the first drop in 3 months, as shrinking demand at department stores such as Macy's Inc. (M) and Wal-Mart Stores Inc. (WMT) overshadowed a boost from the cash-for-clunkers automobile incentive program, Commerce Department figures showed today in Washington.

"Retail sales were projected to rise 0.8%, according to the median estimate of 76 economists in a Bloomberg News survey.

"Macy's, the second-biggest US department store chain, said yesterday it cut inventories 7.5% in the second quarter from a year ago as sales dropped.

"Other reports today showed companies trimmed inventories in June for a tenth consecutive month, and prices of imported goods dropped in July for the first time in 6 months as the cost of commodities such as petroleum and chemicals decreased.

"Figures from the retail sales report showed the government's cash-for-clunkers plan did boost auto purchases, confirming industry data released earlier this month. Sales at dealerships and parts stores climbed 2.4% last month, the biggest gain since January."

You Can't Spend What You Don't Have

With ever-tightening credit standards, and credit card companies like Chase (JPM), American Express (AXP), and Citigroup (C) slashing card limits, buyers are very mindful of costs as Pay Raises Are the Worst in 33 Years.

"Feel like your company has been particularly stingy on the raises this year? You're not imagining it. For 2009, the typical non-hourly worker will see a 1.8% bump in salary, according to a survey by the human-resources consultancy Hewitt Associates. That increase, the smallest in at least 33 years, doesn't even keep up with inflation.

"Going back to the early 1990s, base salaries never increased by less than 3.4% a year, according to Hewitt, which polled 1,156 large companies to get its latest data. Companies desperate to slash costs are turning to worker salaries more deliberately than they have in the past. Some 48% of companies have frozen salaries this year, compared to just 2% last year."

Actually 1.8% more than keeps up for inflation. I have the CPI at -6.2% while the official CPI is -1.3% as discussed in What's the Real CPI?.

However, you can't spend what you don't have -- especially if you have no job and no credit. Note that an unprecedented 4.4 million workers have been unemployed and looking for work for 26 weeks or longer. Indeed, various Social Safety Nets Mask A Deflationary Depression.

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