Doug Short at advisor Perspectives has a great set of charts in his report Retail Sales: At Last, an Improvement!
Doug puts the improvement in proper perspective. However, my first thought in reading the report was "July sales will be likely revised lower".
Now I'm Wondering "What's Going on in California?"
My change in perspective come from looking at California State Finances for July 2012.
Compared to Budget
Total Revenues: -$475 million (-10.1%)
Income Tax: $12 million (0.4%)
Sales Tax: -$295 million (-33.5%)
Corporate Tax: $57.1 million (27.4%)Compared to 2011
Total Revenues: -$468.8 million (-10%)
Income Tax: $156.2 million (5%)
Sales Tax: -$390.7 million (-40%)
Corporate Tax: -$26.4 million (-9.1%)What the Numbers Tell Us
Typically, July is a month when California revenues go on vacation, as the month accounts for about one dollar of every $20 deposited in the General Fund. (Only October has lower revenue volume.)Sales taxes collections off 33.5% vs. budget and 40% from a year ago is not a "timing issue". Either California data is extremely messed up, or retail sales nationally will be revised sharply lower.
Despite those low expectations, July?s revenues were $475 million, or 10.1%, below estimates.
Some of that variance may be due to timing, as a fund transfer expected in July will now be made in August (in the range of $100 million). Most of the shortfall was attributable to sales tax, which dropped $295 million, or 33.5%, below estimates.
Partially offsetting these revenue losses, the state?s other major revenue sources ? income and cor-porate taxes ? performed above estimates.
Corporate taxes rose $57.1 million (27.4%) above estimates. This reverses an eight-month trend of corporate tax revenue underperforming estimates. This could have been helped by a drop in corporate refunds in July, $54.6 million below July of last year.
Personal income taxes came in just above estimates by $12 million in July. The stability of this month?s personal income tax could be attributed to the modest recovery being made in the labor markets. California added 38,300 nonfarm payroll jobs in June, which followed a gain of 45,900 jobs in May.
July?s sales tax performance is harder to explain as it is unclear whether consumer activity has slowed or if this is an issue of timing. The missed amount this month can certainly be made up in the near future. While sales taxes were only projected to hit $882 million in July, the Budget expects the State to collect $2.3 billion in sales tax in August.
Total General Fund Disbursements also went out faster than originally projected. Table 2 shows Local Assistance payments in July totaling $1.7 billion over the budget?s estimates. Most of that was caused by a $1.5 billion school payment scheduled for September, but instead issued in July.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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