John Rubino on Chicago’s Fiscal Disaster

Consumer Finance, Economics, Municipal Debt, Pensions, , , , , ,

This is the second post in a week on Chicago’s epic financial train wreck. That’s a lot of attention and it probably won’t happen again, given the target-rich world we live in.

But jeeze, talk about not learning from past mistakes.

This latest chapter begins with the Chicago mayoral race and the two candidates’ stances on the Jussie Smollett controversy – one is on his side, the other on that of the Chicago PD.

That’s interesting but otherwise irrelevant.

The race is between two African American women, one gay and the other presumably not, one from deep in the local political machine, the other from outside it. So far so good. The tent is getting bigger, more categories of people can aspire to high office, go Chicago.

But this is also apparently irrelevant, because when it comes to saving the city from pension-driven financial collapse, well, here’s a snippet from today’s Wall Street Journal:

There’s little daylight between the two Democrats on policy. Both support higher taxes to pay for pensions, though they differ on which levies to increase. Ms. Lightfoot this week endorsed a value-added tax on legal and accounting services. She’s also proposed an increase in the city hotel tax—already among the highest in the nation—and a real-estate transfer tax. Ms. Preckwinkle is supporting Democratic Gov. J.B. Pritzker’s proposal for a graduated state income tax. Both oppose modifying worker pensions and want to impose a moratorium on charter schools.

Trailing in the polls, Ms. Preckwinkle and her supporters have resorted to weaponizing identity politics. Last weekend U.S. Rep. Bobby Rush smeared Ms. Lightfoot at a Preckwinkle rally as a killer of black people and champion of police because she has served on the Chicago Police Board and Police Accountability Task Force. “Everyone who votes for Lori, the blood of the next young black man or black woman who is killed by the police is on your hands,” Mr. Rush declared.

Ms. Preckwinkle declined to denounce the comment. She may believe fomenting racial discord will help her turn out the vote in the city’s heavily black South and West sides, where she performed well during the primary. Thus, Ms. Preckwinkle may not want to be seen supporting the police investigation of Mr. Smollett, who claims to be innocent and a victim of racial discrimination.

The Journal reporter concludes:

“Neither candidate appears likely to arrest the city’s spiral into insolvency. But stopping its descent into cynicism and racial grievance may be an equal imperative.”

Wrong, WSJ. The financial spiral is everything. Chicago is experiencing an already catastrophic rate of out-migration, as people who can afford to (a.k.a. the tax base) move to less rapacious places. And the two mayoral candidates both oppose scaling back union benefits while proposing much higher taxes and more stringent regulations, which will turbo-charge the descent into financial chaos.

And this, recall from the post that appeared here a few days ago, comes as both Chicago and its host state Illinois begin massive and sustained borrowing campaigns to cover existing shortfalls.

The conclusion? They can only behave this way in a financial market that assumes no matter how badly they mess up, national taxpayers will be coerced into saving them and their investors. Look up “moral hazard” in the dictionary and you might find a picture of the Illinois state seal.

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Feburary 2019 Retail Sales ‘Tank’ – CNBC

Consumer Finance, Economics, Government Statistics, Media Bias
  • The weak report from the Commerce Department on Monday joined a raft of other soft data, including housing starts and manufacturing production that have left economists anticipating a sharp slowdown in growth in the first quarter.
  • Retail sales dropped 0.2 percent as households cut back on purchases of furniture, clothing, food and electronics and appliances, as well as building materials and gardening equipment.
  • Data for January was revised higher to show retail sales increasing 0.7 percent instead of gaining 0.2 percent as previously reported.

U.S. retail sales unexpectedly fell in February, the latest sign economic growth has shifted into low gear as stimulus from $1.5 trillion in tax cuts and increased government spending fades.

The weak report from the Commerce Department on Monday joined a raft of other soft data, including housing starts and manufacturing production that have left economists anticipating a sharp slowdown in growth in the first quarter.

The loss of economic momentum also reflects higher interest rates, slowing global growth, Washington’s trade war with China and uncertainty over Britain’s departure from the European Union. These factors contributed to the Federal Reserve’s decision last month to abruptly end its three-year campaign to tighten monetary policy.

The U.S. central bank abandoned projections for any interest rate hikes this year after increasing borrowing costs four times in 2018.

Retail sales dropped 0.2 percent as households cut back on purchases of furniture, clothing, food and electronics and appliances, as well as building materials and gardening equipment. Data for January was revised higher to show retail sales increasing 0.7 percent instead of gaining 0.2 percent as previously reported.

Economists polled by Reuters had forecast retail sales rising 0.3 percent in February. Retail sales in February advanced 2.2 percent from a year ago.

The surprise drop in sales in February could partly reflect delays in processing tax refunds in the middle of the month. Tax refunds have also been smaller on average compared to prior years following the revamping of the tax code in January 2018. Cold and wet weather could also have hurt sales.

The February retail sales report was delayed by a 35-day partial shutdown of the federal government that ended on Jan. 25. March’s retail sales report, which was scheduled for publication on April 16, will be released on April 18.

The dollar slipped against a basket of currencies after the report. U.S. Treasury prices pared losses.Broad weakness

Excluding automobiles, gasoline, building materials and food services, retail sales fell 0.2 percent in February after an upwardly revised 1.7 percent surge in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

They were previously reported to have rebounded 1.1 percent in January. Consumer spending accounts for more than two-thirds of economic activity. The sharp upward revision to core retail sales in January was insufficient to reverse December’s more than 2.0 percent plunge, leaving expectations for tepid GDP growth in the first quarter intact.

Growth estimates for the January-March quarter are as low as a 0.8 percent annualized rate. The economy grew at a 2.2 percent rate in the fourth quarter after expanding at a 3.4 percent clip in the July-September period.

In February, sales at building materials and garden equipment and supplies dealers tumbled 4.4 percent, the biggest drop since April 2012. Receipts at clothing stores fell 0.4 percent and those at furniture outlets dropped 0.5 percent.

Sales at food and beverage stores declined 1.2 percent, the biggest drop since February 2009. Receipts at electronics and appliances stores fell 1.3 percent, the largest decline since May 2017.

But consumers bought more motor vehicles, with sales at auto dealerships rebounding 0.7 percent after declining 1.9 percent in January. Households also spent more at service stations, likely reflecting higher gasoline prices.

Online and mail-order retail sales rose 0.9 percent. Sales at restaurants and bars edged up 0.1 percent and spending at hobby, musical instrument and book stores increased 0.5 percent.

Retail SalesMonthly sales for retails and food servicesJan ’18Jul ’18Jan ’19Apr ’18Oct ’18-1.5-1-0.500.511.5Source:CensusJanuary 2019● Retail sales: 0.2%

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