Retail Sales and Consumer Credit

Yesterday's reports from the world of the retailing were, by most accounts, underwhelming. Thomson Reuters index of 28 retailers showed sales at stores open at least a year rose only 3.1% in June. While far better than the 4.9% drop reported in the same month last year, it's not the snap back that most were expecting just a few short months ago when many retailers placed their orders. What does this mean? Excess inventory for the stores and hopefully big sales coming up for the consumer. Woo Hoo!!

Lackluster retail sales are logical given the continuing shrinking in consumer credit. It seems that the American consumer is still hungover from its credit card binge of the mid-oughts and is attempting to cut back. The Federal Reserve's report on consumer credit yesterday showed a contraction in credit at an annual rate of 4.5% in May, with revolving credit down a whopping 10.5%. Total consumer credit currently stands at $2.4 trillion, down from roughly $2.6 trillion at its peak and up from $2 trillion in at the end of 2003, when the US was climbing out of the last recession. So credit contracted by $200 billion and our entire financial system nearly collapsed. During most economic recoveries, credit is expanding. Yet most consumers just can't do it anymore. They have to cut back because they just can't borrow anymore due to economic hardship or just plain common sense. It's hard to expand when you're really supposed to be contracting. Which is why you can't solve a problem of too much debt by offering more credit. But don't worry, the Fed's just gonna keep on trying.