Back in April, I crunched retail and oil price numbers and concluded that the price of oil was responsible for over half of the changes in real retail spending in the last two years. As the price of oil continued to shoot higher, on June 2, after examining the role of China's hoarding in its burgeoning strategic oil reserve, and the hoarding going on at sea by oil companies and speculators, I wrote that

The effects of the Oil Shock that took prices to $100+/barrel in 2007-2008 are gone now, aren't they?

Before the Black September market/401k meltdown, aside from housing and finance, the chief drag on Main Street was the shock of Oil prices rising relentlessly from $55 dollars/barrel in January 2007 to $147/barrel in July 2008. This was the 4th such Oil Shock, the previous shocks all causing recessions in 1973-74, 1980, and 1990. Last summer people weren't talking about how their retirement accounts had been cut in half, or how unemployment was skyrocketing, they were talking about how it took $50 or $100 to fill up their cars or SUVs. Suddenly mass transit and carpooling were popular again.

This morning both March PPI and retail sales were released. The PPI was more negative than anticipated, suggesting a negative CPI tomorrow (Deflation is Here!).

Retail sales are more interesting. I've written several pieces about consumers coming back from the grave. At first blush, the March numbers seem to contradict what we saw from Shoppertrak re mall sales; and also same store sales, and to a very limited extent, auto sales -- all of which showed some improvement.

Retail sales were off -9.4% YoY. Ex-auto they were off ~6.0% YoY. A closer look suggests (1) Easter falling one week later in April may have much to do with the decline; and (2) almost all of the decline is in auto and gasoline sales.

Total retail sales from a year ago fell from 380.2 to 344.4. Almost all of that decline was autos, down from 67.0 to 49.7; and gasoline, down from 42.3 to 27.9.

One of the heretical thoughts I continue to hold is that the "slow motion bust" that we are living through, may not proceed to destroy the entire economy like a nuclear bomb. Rather, like a neutron bomb over Wall Street, it might destroy the financial sector but leave most of the economic infrastructure in place. If it is a worthy goal that the doctrine of "Profits are privatized, losses are socialized" must cease, then it may be an absolute tonic if several financial enterprises thought "too big to fail", nevertheless do.

A noteworthy graph from Yahoo finance demonstrates that the "neutron bomb" scenario indeed may be unfurling. The graph below covers the last 3 years for the S & P 500 (red) and compares it with the financial sector as represented by the Financial SPDR (blue), starting from a baseline (0%) of 5 years ago: