Stimulus About To Wither On Vine; A look At February Retail Sales

Jed Graham writing for Investor's Business Daily says something I have been saying for several months: Extra Stimulus Aid Fuels Sales, But Fiscal Flood Cresting Early

In gauging the economic recovery's trajectory, you shouldn't forget that this is not a normal tax season.

People who don't pay income tax are getting an extra $30 billion in refundable tax credits thanks to the Recovery Act, the Joint Committee on Taxation has estimated. Based on the timing of tax refunds in past years, well over half of that has likely been paid out already.

Mark Zandi, chief economist at Moody's Economy.com, said the extra serving of tax-season cash to modest-income families "helps explain the somewhat surprising strength in retail" in February.

Excluding AMT relief, Zandi figures peak stimulus hits this month or next.

Just how big of a boost will this extra cash provide? If the economic impact came in a single quarter, CBO's analysis implies that it would hike GDP by 0.6-1.5 percentage points. In all likelihood, the effects will be over a longer period.

Retail Sales Mirage

"I think we are seeing the effects (of Recovery Act tax refunds) on retail sales and spending," said Allen Sinai, president of Decision Economics.

Same-store sales at major retailers rose 4.1% in February, the best year-over-year gain in over two years, Retail Metrics said March 4.

January 2010 sales were nothing to brag about and February 2010 same store sales will not be either.

February 2009 sales were horrible so year over year comparisons will be extremely easy. Moreover, the whole same store sales methodology is flawed to begin with on account of closed stores, and even closed chains like Circuit City. For details, please see Retail Sales Rise: Where? Let's Take a Look; Expect Nothing Less Than Panic

Finally, one has to take into consideration favorable for spending income tax returns.

In spite of that, tax collections are down although many states have raised sales taxes. That's what really matters.

Moreover tax credits for houses have run out of stimulus effect as has cash-for-clunkers.

Expect actual tax collections (reported later) will likely fall short regardless of what the report says.

I am on the road now. The above was written ahead of Friday's advance sales report.

Addendum:
A quick post before I hit the road returning home.

Bloomberg reports U.S. Stocks Advance as Retail Sales Bolster Economic Optimism

U.S. stocks rose, keeping the Standard & Poor’s 500 Index at a 17-month high as an unexpected increase in retail sales added to evidence the economic recovery is strengthening.

Google Inc. and Target Corp. climbed more than 0.4 percent after the Commerce Department said purchases at U.S. retailers increased 0.3 percent last month, compared with a 0.2 percent drop forecast in a Bloomberg survey of economists. National Semiconductor Corp. rose 1.3 percent after the chipmaker forecast better-than-estimated revenue.

“People are looking to buy stocks,” said Mark Bronzo, a money manager in Irvington, New York, at Security Global Investors, which oversees $21 billion. “Risk appetite seems to be growing as people become more comfortable with the sustainability of the economic recovery. Today’s retail sales numbers and the better outlooks from retailers confirm that.”

Please consider the Department of Commerce Advance Monthly Sales For Retail and Food Services for February 2010.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $355.5 billion, an increase of 0.3 percent (±0.5%)* from the previous month and 3.9 percent (±0.5%) above February 2009. Total sales for the December 2009 through February 2010 period were up 4.5 percent (±0.3%) from the same period a year ago. The December 2009 to January 2010 percent change was revised from +0.5 percent (±0.5%)* to +0.1 percent (±0.3%)*.

Note the big downward revision in January. So now February is artificially elevated sequentially.

Also note that economists were surprised by the strength of February sales (that really were not very good in the first place for multiple reasons) even though Retail Metrics said on March 4 that "Same-store sales at major retailers rose 4.1% in February"

You can't make this stuff up. No one would believe it.

Let's see how the market closes. A gap and crap on silly misplaced optimism as well as silly reporting from those who do not understand retail sales would fit the bill. But hey, who knows.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Kansas City School District Faces Bankruptcy, Closes 29 of 61 schools; Every Child Left Behind For Decades

Numerous people sent me links to this story involving public schools in Kansas City.

Please consider Kansas City Closing 26 Public Schools

Facing potential bankruptcy, the board that governs the once flush-with-cash Kansas City school district is taking the unusual and contentious step of shuttering almost half its schools.




Administrators say the closures are necessary to keep the district from plowing through what little is left of the $2 billion it received as part of a groundbreaking desegregation case.

The Kansas City school board narrowly approved the plan to close 29 out of 61 schools Wednesday night at a meeting packed with angry parents. The schools will close before the fall.

Emotional board member Duane Kelly told the crowd of more than 200 people Wednesday night, "This is the most painful vote I have ever cast" in 10 years on the board. Some chanted for the removal of the superintendent, while one woman asked the crowd, "Is anyone else ready to homeschool their children?"

Under the approved plan, teachers at six other low-performing schools will be required to reapply for their jobs, and the district will try to sell its downtown central office. It also is expected to cut about 700 of the district's 3,000 jobs, including about 285 teachers.

District officials face dozens of issues as they begin the massive job of downsizing the district — reworking school bus routes, figuring out what to do with vacant buildings and slashing its payroll.

Superintendent John Covington has stressed that the district's buildings are only half-full as its population has plummeted amid political squabbling and chronically abysmal test scores. The district's enrollment of fewer than 18,000 students is about half of what the schools had a decade ago and just a quarter of its peak in the late 1960s.

Simple Question

This problem did not happen overnight. School enrollment is half what it was 10 years ago. So why did it take 10 years for the district to do something?

Please note that Covington took the job in July 2009 according to Wikipedia. On that basis he can be commended for doing a job long neglected for 10 years.

Flashback March 16, 1998

Inquiring minds are reading Money And School Performance: Lessons from the Kansas City Desegregation Experiment.

Executive Summary

For decades critics of the public schools have been saying, "You can't solve educational problems by throwing money at them." The education establishment and its supporters have replied, "No one's ever tried." In Kansas City they did try. To improve the education of black students and encourage desegregation, a federal judge invited the Kansas City, Missouri, School District to come up with a cost-is-no-object educational plan and ordered local and state taxpayers to find the money to pay for it.

Kansas City spent as much as $11,700 per pupil--more money per pupil, on a cost of living adjusted basis, than any other of the 280 largest districts in the country. The money bought higher teachers' salaries, 15 new schools, and such amenities as an Olympic-sized swimming pool with an underwater viewing room, television and animation studios, a robotics lab, a 25-acre wildlife sanctuary, a zoo, a model United Nations with simultaneous translation capability, and field trips to Mexico and Senegal. The student-teacher ratio was 12 or 13 to 1, the lowest of any major school district in the country.

The results were dismal. Test scores did not rise; the black-white gap did not diminish; and there was less, not greater, integration.

The Kansas City experiment suggests that, indeed, educational problems can't be solved by throwing money at them, that the structural problems of our current educational system are far more important than a lack of material resources, and that the focus on desegregation diverted attention from the real problem, low achievement.

The Kansas City Story

In 1985 a federal district judge took partial control over the troubled Kansas City, Missouri, School District (KCMSD) on the grounds that it was an unconstitutionally segregated district with dilapidated facilities and students who performed poorly. In an effort to bring the district into compliance with his liberal interpretation of federal law, the judge ordered the state and district to spend nearly $2 billion over the next 12 years to build new schools, integrate classrooms, and bring student test scores up to national norms.

It didn't work. When the judge, in March 1997, finally agreed to let the state stop making desegregation payments to the district after 1999, there was little to show for all the money spent. Although the students enjoyed perhaps the best school facilities in the country, the percentage of black students in the largely black district had continued to increase, black students' achievement hadn't improved at all, and the black-white achievement gap was unchanged.(1) .....

Every Child Left Behind For Decades

Throwing money at the problem wasted $2 billion. Now the district faces bankruptcy, and is forced to abandon now decaying schools bought with wasted taxpayer money.

In Kansas City, as in Detroit, every child was left behind ... for decades.

Closing schools is the correct decision. Moreover, Superintendent Covington needs to fire every hopeless school administrator as well, which may in fact be almost all of them.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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US 30-Year Treasury Bond Direct Bidders See Value, Step Up To The Plate And Buy

Inquiring minds are reading Treasury Yield Curve Near Record Adds to Demand at Bond Auction.

Treasury 30-year bonds gained as one of the biggest yield premiums over 2-year government securities on record bolstered demand at today’s U.S. auction of $13 billion in bonds.

“Insurers, pension funds and other investors continue to buy the 30-year because of its outright yield and it relative value attractive against the short-end given the inflation and economic pictures,” said Thomas Tucci, head of U.S. government bond trading in New York at the Royal Bank of Canada, one of the 18 primary dealers required to bid at Treasury auctions. “There is just little value in the front end versus the long bond.”

“If you look behind the trade numbers, exports and imports both fell,” said Kathy Lien, director of currency research, with online currency trader GFT Forex, in New York. “The contraction in imports and exports does not play into the growth story. That’s why risk currencies are selling off and the dollar is rising.”

Today’s auction of 30-year debt followed a sale of $21 billion of 10-year debt yesterday. The Treasury auctioned a record-tying $40 billion of three-year notes on March 9.

The 30-year securities drew a yield of 4.679 percent, compared with an average forecast of 4.702 percent in a Bloomberg News survey of 9 of the Federal Reserve’s 18 primary dealers. Direct bidders, non-primary dealers that place their bids directly with the Treasury, bought 29.6 percent, the highest since at least February 2006.

“The yield pick-up extending out the curve is attractive at these levels,” said Richard Bryant, senior vice president in fixed income at MF Global Inc. in New York, a broker of exchange-traded futures. “Real money will go to work on the long end of the Treasury market. The range that has held on the long end is reflective of the benign inflation environment at the moment.”

Charts of the Day

Tyler Durden writing on Zero Hedge has a pair of interesting charts in $13 Billion 30 Year Reopening Closes At 4.679%, Directs Take Down Whopping 29.7%: A New Record, Indirects Settle For Mere 23.9%

Direct Bidders



click on chart for sharper image

Indirect Bidders



click on chart for sharper image

A Very Good Auction

In contrast to what many think about treasuries ready to blow up because of falling foreign demand, I repeat what I have been saying all along: US demand will pick up.

That aside, it is also important to point out that indirect bidding is related to trade deficits. When the trade deficit is high and rising, foreign buyers step up treasury buying as a purely mathematical function of parking inflows, although there is nothing that forces the buyers to go that far out on the yield curve.

Since the trade deficit is not what it once was, one should expect foreign buying to slow. Thus I do not know what Tyler Durden means when he says "Indirects at miserable 23.9% vs. Avg. 42.32%".

Here is my intrepretation of the auction: I would suggest this auction went very well as demand is picking up from US buyers, without yields going to the moon.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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