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Weaker Economy, Weaker Coin Sales?
By Patrick A. Heller
March 11, 2014

Thus far in 2014, most economic reports are coming in below expectations and indicate an economic slowdown. This is an important negative development for coin dealers, who handle merchandise that most buyers can only acquire with surplus or discretionary income.

Unfortunately, the U.S. government wants to fool the public into thinking there is still an economic recovery under way – and to spend money assuming that information to be accurate. One way that the government is trying to mislead people is by claiming that bad weather is responsible for at least some, and maybe the major proportion, of the recent weak economic reports.

Don’t fall for this deception.

There are several signs that prove the economy is getting weaker. The actual decline in last holiday season sales occurred despite higher unit prices. Sales were so poor that Radio Shack last week announced that it would close 1,100 stores instead of the 500 that it had forecasted in late 2013. Earlier this year, Target, Macy’s and J.C. Penney also announced significant store closures and job cuts. Last week, Staples reported a huge decline in revenues and net income and that it would close 225 stores. Even Costco reported much lower sales and earnings than expected.

As people lose jobs from these store closings, that is bound to further reduce consumer demand.

Last Wednesday, the Institute for Supply Management’s February 2014 Report On Business had some terrible data. (See more here.) The Non-Manufacturing index fell from 54.0 in January to 51.6 in February, worse than the consensus forecast of 53.5. That was the lowest reading for this index since February 2010. The decline in this index of demand for services is a sign to coin dealers that consumers are becoming more careful with spending their discretionary income.

Even worse, the ISM Employment Index also fell, from 56.4 in January to 47.5 in February. This was the second-largest percentage decline in the sub-index in its history. The last time that this sub-index declined 15 percent in one month was in 2008, just before the U.S. economy fell into recession.

A genuine reason that could explain why consumers are cutting back on spending is that inflation-adjusted median household incomes in the United States have been declining since the current U.S. president assumed office. (See more here.) From a peak of about $55,500 at the beginning of 2009, the St. Louis Federal Reserve Bank now reports that the inflation-adjusted median household income has declined, almost on a straight line, to just over $51,000 as of last September. With lower incomes, and rising consumer prices, Americans have less to spend on discretionary items.

The Federal Open Market Committee continues to claim that consumer prices are rising less than 2 percent annually. If so, why are the wholesale prices for these commodities already up more than 20 percent just since the start of this year: natural gas, oats, butter and hogs? And why are the wholesale prices on these commodities up at least 7 percent over the past 10 weeks: beef, flour, corn oil, cheddar cheese, wheat, soybeans, cocoa, eggs, sorghum, gold, silver, palladium and platinum? Of the commodities I track, only four show slight decreases since the start of 2014, and two others had price increase of less than 7 percent. Overall 17 of 23 had wholesale price increases of 7 percent or more.

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As for the pretense that consumer demand is down across the U.S. in recent months because of nasty weather, the facts prove this to be false. Of the 10 most populous American cities, eight (New York, Los Angeles, Houston, Phoenix, San Antonio, San Diego, Dallas, and San Jose) had higher average temperatures from Jan. 1 through Jan. 22 than their historical average. The two that were lower than their historical average were Chicago by 5 degrees and Philadelphia by 1 degree.

Still, if people were delayed in spending money because of bad weather, this should largely have caught up when the weather improved. Alternatively, people could have increased their shopping over the Internet. However, the U.S. Department of Commerce report for January 2014 retail sales showed that overall retail sales declined 0.4 percent. from year earlier figures and that online retail sales declined 0.6 percent. It doesn’t make sense to me how Internet sales could have declined because of poor weather.

There are a number of other statistics that show that declining consumer demand is a long-term trend and not something attributable to recent terrible winter weather in parts of the United States. For instance, data printed in Barron’s shows that U.S. electrical power consumption has been generally declining since August 2008. The last time that power consumption declined on such a scale started in 1929 and lasted through much of the 1930s.

Steel production in the U.S. fell sharply in 2008 during that recession. Production never returned to pre-recession levels. Since about mid-2012, overall U.S. steel production has again gradually declined. Even scarier, the number of new housing permits and the starts of new housing construction are both down more than 50 percent from levels in early 2007.

To summarize, the actual decline of the U.S. economy is much different than the generally rosy picture presented by government officials. Coin dealers who make future plans on the basis of reality are more likely to survive, and maybe even prosper, than those who fail to plan or who base their decisions on deceptive government reports.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects.


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Comments
On March 11, 2014 Bill Yarbrough said
I will disagree. I drive all over the United States and there are five times as many big trucks on the road now compared to two years ago. We are selling more cars/vehicles. Consumers are more conscientious about use of electricity and using more energy efficient items. I have converted to CFL and LED bulbs and so have a lot of other people, so your part about lower electric consumption is explained easily. People are insulating homes more and more, which lowers consumption and power costs. Your article sounds more like a Tea Party Republican rant than anything else.
On March 11, 2014 Michael Searle said
Please lay off the politically biased commentary.  Just report facts, not opinions like the government trying to fool the public.  Everyone except you seems to think the economy is rebounding.  I get my financial news from multiple sources, and no one except Fox News agrees with your perception.
On March 12, 2014 Patrick A. Heller said
I appreciate Bill and Michael taking time to contribute their thoughts, but they appear to be misinformed on the points they raise.

It is more important on the number of miles driven by cargo-carrying trucks than the quantity of trucks on the road.  State treasuries collect taxes for every mile driven by a cargo-carrying truck.  If, for instance, the number of miles driven had increased five times, the state treasuries would have collected a bonanza of taxes.  Such news would have been widely reported as signs of an economic recovery.  I haven't seen such news reports.

As for increased sales of cars/vehicles, I agree that there is some increase.  However the increases widely reported are sales by the manufacturers, which in 2013 included increases in the inventories sitting on the lot of car dealers unsold to retail customers.  Car dealer inventories are near their highest levels in some years.  As for actual sales of cars and trucks, perhaps both gentlemen missed the testimony by "Tea Party Republican" Fed Chair Janet Yellen to the Senate Banking Committee two weeks ago where she acknowledged that vehicle sales had declined in 2014.

As for electricity consumption, usage by consumers is insignificant compared to industrial demand.  Most people I know are trying to cut back on individual electric consumption.  However, the major decline has some from the closing of American factories.  This has more than offset the added demand from an increase in the US population since the beginning of 2009 (nearly 4%)as documented by the US Census Bureau and the US Population Clock.

To try to keep it short, this commentary included only a handful of factual reports.  It would be easy to add much more where people such as David Walker (former Comptroller General of the US for 10 years), the former head of the US Bureau of Labor Statistics until 2012, and Fed Chair Janet Yellen support the sense of my commentary.

I too travel all over this country.  I personally speak to hundreds of coin dealers every year.  For about the last nine months, a near unanimous report on how their businesses have done is that purchasing and sales volume has fallen significantly. There are reasons why this is happening.  In my judgment, it is important for coin dealers to understand the accurate economic problems that the industry/hobby faces. faces.   
On March 12, 2014 Michael Searle said
Although it is tempting to engage in a point/counterpoint debate on the health of the economy, I will simply quote a recent New York Times article on the just-closed fiscal year: "the federal budget deficit fell more sharply than in any year since the end of World War II. Growth in tax revenue from an improving economy accounted for much of the decline in the deficit."  Patrick, neither one of us is an economist.  You obviously choose to cite and believe negative indicators that support your strongly held political beliefs.  I think you do a disservice to your readers to ignore the myriad positive indicators that are also out there.  Any bull or bear market is going to send mixed signals.  The trick for all of us is to figure out what they are saying.

My larger problem with your article is this:  one of the things I enjoy about numismatics is that it is an escape and respite from the pressures of running a business, bad news in the paper and on TV, etc. When I opened Numismatic News online I was hit with your politically biased diatribe that simply made me angry.  I don't want your politics.  If you want to tell coin dealers to beware because the economy is going into the dumper, say that. But you lose me when you inject your conspiracy theories about the government actively trying to fool and mislead the public.  And no, I am not a Democrat and did not vote for Obama; I am a moderate Republican trying desperately to keep Tea Partiers like you and Harry Miller from completely hijacking my party and my hobby. Yes, my political beliefs run as deep as yours, but "to everything there is a season, and a time for every purpose under heaven."  A numismatic article is no place for your politics.

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