More on retail sales, plus Amazon, Facebook and the national emergency
I wanted to switch things up a bit for today's post and focus in the news. What I am going to do is present you with news as presented by traditional media. And then I am going to give you 'my take' on the story. Hopefully, this will highlight what is being unsaid or offer analysis that's not being provided.
Big banks are busy lowering their Q4 GDP estimates after the huge miss on retail sales yesterday. I've seen Morgan Stanley and Barclays both lower their numbers. But, as I wrote yesterday, I believe this is a one-off that might even be revised up. None of the other data corroborate such a large drop. Moreover, the sale of heating oil is part of non-store retailers. That's the category that includes internet sales, which was down 3.9%. December saw a big drop in heating oil prices. So I suspect that was a large factor in that number's decline.
Overall, I am sceptical that the retail sales drop is meaningful. For me, the big story here is the negative impact a government shutdown has, not just on the economy and sentiment toward the efficacy of government, but on the reliability and timeliness of government data. There are still a lot of missing data points: business inventories, factory orders, trade. That's the big story here. So, at the margin, expect some residual volatility in markets until we get back to normal.
As for GDP growth, I do think we are reaching stall speed growth. But it is the jobless claims that have me thinking this, not retail sales.
Here's Mike Allen's take:
Amazon's retreat from Queens reveals the dynamics of a new power game: Giant tech companies play as equals with governments, with massive influence over economies and communities, Axios' Scott Rosenberg and Ina Fried report.
How it works ... Amazon gave us a glimpse into the new playbook of how a tech company, functioning like a quasi-state, can flex its power:
Close the doors: Dicker with cities and states in secret.
Hide your cards:Tell the other side what you want without letting on how flexible you're actually going to be.
Change the game: Amazon may prefer to rewrite its expansion plan rather than horse-trade with demanding and unpredictable local elected officials.
Leaping to conclusions about who came out on top is a mistake:
Rep. Alexandria Ocasio-Cortez, whose district is next door to the Amazon site, tweetedabout defeating "Amazon's corporate greed."
But New Yorkdidn't win much. Polls showed wide support in the area for bringing Amazon to Queens, even as some residents feared rent increases.
Another way to play the game:
Google and Apple have been undertaking major expansions outside Silicon Valley, with a lot less tax money and a lot less drama.
I have a different view. You CAN leap to conclusions about who came out on top. And Amazon did not come out on top. The reason they retreated from Long Island City is because they were taking a battering in the press. And they wanted the beating to stop. So they retreated. They came out late in 2017 trumpeting how they were creating jobs. And now they are running away under public scrutiny from a decision they made just a couple of months ago. That's a clear loss for Amazon.
And I know this because I have been to Google's NY headquarters. It's massive and its expanding. And while Google also has received a bit of negative press about its expansion in New York, the fact that they have done this with less fanfare and aren't getting a massive tax break has worked in their favor.
After the Foxconn fiasco in Wisconsin, people are fed up with states and municipalities trying to woo corporate relocations by showering companies with tax breaks and by relaxing labor laws. The Amazon episode has to be seen in this light. And it tells you that the political atmosphere in the US has shifted in a way that is less favorable for corporations.
Here's the Washington Post on fines Facebook is facing:
The Federal Trade Commission and Facebook are negotiating over a multi-billion dollar fine that would settle the agency’s investigation into the social media giant’s privacy practices, according to two people familiar with the probe.
The fine would be the largest the agency has ever imposed on a technology company, but the two sides have not yet agreed on an exact amount. Facebook has expressed initial concern with the FTC’s demands, one of the people said. If talks break down, the FTC could take the matter to court in what would likely be a bruising legal fight.
My take: As with the news story above, this is all about a changed political environment. The American general public sees Facebook as a bad actor. And so, the FTC is being forced to take more aggressive action in dealing with it. In a different political climate, Facebook might have received a less severe penalty. But, people want to see government regulate more assiduously and take bad actors to the woodshed.
Note that in Europe, regulators are dealing aggressively with Facebook too. Just in the past week, Germany has told Facebook that it cannot aggregate data from Instagram, Facebook and WhatsApp, and that it cannot aggregate data collected on third-party websites into a user's data silo. Facebook is poised to challenge this decision in court. And it is fighting the FTC moves as well. But this strategy of resisting changes is a serious mistake. I reckon Facebook will only look worse. Likely, the days of self-regulation are over for Facebook. And the next phase will be more aggressive regulation, both in the US and in Europe.
The coming national emergency
In less than an hour, President Trump will call a national emergency in order to build a wall on the US southern border with Mexico. The reality is that there is no national emergency. Trump simply has ben unable to get legislation through Congress for an issue he sees as core to his base of political support. So, stymied by the legislative process, Trump is looking to use any means necessary to achieve his goal of building a wall.
The way to look at this is as Trump collecting power in the executive branch at the expense of the legislative branch. He is taking the power of the purse that has legitimately lay with the legislature and seizing it as his own. And under the guise of a national emergency, he won't just be able to appropriate funds for the wall. He can now also do a lot of things that would normally be considered unconstitutional like seize land or bank accounts. He could throw people in jail or detain them indefinitely without a trial too. Think of this is as martial law, where the President has the ability to do these things because the country is under attack and he needs to act quickly.
Now, the media has focused on the likelihood that Trump will meet court challenges on this decision. But, the big picture is this: Trump is setting a precedent that any President from either party can emulate in the future. And to the degree Congress allows this to happen, they are abrogating their duty by forgoing the checks and balances of the three branches of government that are essential to the functioning of American democracy. This is a very dangerous precedent, being done out of political expediency by people who think the ends justify the means. The consequences down the line will be the erosion of democracy as the executive acquires more autocratic control.