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Observations On Retail Sales And Consumer Strength
Earlier today we saw a release of total retail sales data. Not surprisingly, the immediate relase from the Cleveland Fed was one which tried to point the 1.5% September decline in a favorable light.
Total retail sales slipped down 1.5 percent (nonannualized) in September, due in large part to an 11.8 percent drop in auto sales as the CARS incentives rolled-off. Excluding autos, retail sales rose 0.5 percent during the month. Elsewhere, sales gains were relatively broad-based, with only a few categories (building material & supply dealers, miscellaneous store retailers, and nonstore retailers) posting decreases during the month. One of the addenda measures meant to get at “core” retail sales—sales excluding autos, building supplies, and gas stations—rose 0.5 percent in September, following a 0.7 percent increase in August pulling its 12-month growth rate up from −1.8 percent to −0.3 percent during the month. Over the past 3-months, the “core” series is trending at an annualized rate of 4.0 percent, a tentative sign that consumption may be starting to firm.
Yet the core issue here, as well as elsewhere as pertains to the overall economy, is the $64k question of what is the true state of the US consumer and primary GDP driver, with all the "money on the sidelines" and presumed paper profits from a surging stock market. Moody's provides some perspectives on what to expect going forward from the increasingly more thrifty US consumer base.
With the fall of Lehman Brothers on September 15, 2008, the economy and retail entered a new world, with consumer spending dramatically reduced during the back half of that “month of demarcation.” In order to get a true read and to improve the efficacy of comp store sales analysis, it is therefore instructive to look at September 2007 performance to see how far the top line has really eroded over the past two years. The chart below provides comparable store sales results for select key retailers for September 2007, 2008, and 2009.
We continue to feel that Holiday 2009 revenues will be modestly down, and profits will be up, from 2008s, with any surprises most likely to occur on the downside. There do not appear to be any macroeconomic forces at work that would lead us to conclude that the consumer will be better positioned to spend during the balance of 2009 than he/she was during the similar period of 2008.
A key factor that we will focus on will be third quarter-ending inventory levels. Although they will most certainly be down from 2008 levels, they may not have fallen enough to avoid the rampant pre-Christmas discounting that took place in 2008.
Apparently Moody's is not buying the broader argument tosses around by pundits that simply as a result of burgeoning 401(k)s (which are still materially below historic levels), the average consumer will toss aside prudence and in a world where jobs may be lost overnight, is unlikely to reinforce the positive-feedback spending cycle. However, as we anniversary Lehman and with Q4 results finally being seen on a true apples to apples basis in the "new normal" environment, coupled with corproate expectations for not just "less declining" but actually increasing EPS, and the Q4-Q1 2010 boundary may be one that very well tests market which as the realists note is priced not just to perfection, but to growth well beyond the expectations of a simple V-shaped recovery.
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-65 - (-49) = -65 +49 = -16
This article from Reuter's last week provides good insight into the real consumer spending guage. Sales taxes declines are one of the biggest drivers in the massive shortfalls being seen in many states' budgets this year. Clearly, Joe Consumer is not out shopping.
http://www.reuters.com/article/politicsNews/idUSTRE5985ET20091009?sp=true
They just need higher-grade hopium. And then it will be SPEND!! SPEND!! SPEND!!
Let the good times roll!
http://online.wsj.com/public/resources/documents/st_pay_20091014.html
Did you see the Blackstone numbers? How can that be?
Yeah, I noted that earlier. Looks like a typo.
Moody's trying to gain back some credibility?
Yet retail stocks soar...
Excerpts from Nathan Martin’s take today on Morning Update/Market Thread 6:47 AM:
Stocks are considerably higher this morning following a good report from Intel and a marked to complete fantasy report from JPMorgan...
The report from Intel was better than forecast, but it was still a year over year decline of revenues of nearly 8%. Last year at this time Intel was at $16, now it is at $22 with lower earnings. Which is the more overvalued market? They are pricing in a future that isn’t going to happen.
JPM profit grew a sickening six fold, or $3.6 billion!! $1.19 billion came from their investment banking division, the one that makes bets on theirs and Goldman’s market manipulations. The rest, I’m sure, came from fees on the consumer and from marking their assets to fantasy in accordance with the rules they created/paid for. Great job, that’s quite the business model. Keep in mind that these fantasy games, taxpayer backed, artificially low interest rate (taxpayer funded), “profits” jack up the “earnings” of the entire market, making earnings look far better than reality. These phony paper earnings are nothing but a lie and that lie will eventually be exposed for what it is… The politicians won’t expose it—it will be up to the people at some point to put an end to the pillaging…
Retail sales fell 1.5% in September, the concensus was for a 2.1% fall following the end of cash for clunkers, thus producing a “beat.” Note in Econoday’s chart, that yoy retail sales are down 6%, much greater than either the Redbook or Goldman ICSC numbers—oh, and Econoday will not talk about the yoy numbers, only the short term pop…
By the wave count, we are very near the end of this rally, wave B. I know this rally has turned a lot of people into believers, that’s exactly the way the psychology is supposed to work to take in as much money as the market can. We are at an extreme, the place where contrarians make their money. It is good to run with the crowd in the middle, but at the extremes is where the contrarians are finally proven correct—it’s coming. In the mean time let all the people see the magical and mystical bank profits and wallow in the mythical blue skies…just as the pigmen wallow in their hard bought and paid for “profits” and bonuses, the purchasing power of your money erodes away.
http://economicedge.blogspot.com/
It appears that the feed back loop that is in place is effecting more and more American consumers along with individuals, corporations and some governments world wide. That loop is the quest not for make believe gains in a world dominated by a race to the fx bottom, but by folks looking for a store of wealth in a world of topsy turvy valuations. Makes me wonder how many 100-400 oz silver and two-five oz gold purchases are being made for physical delivery and if those sales are being counted in the retail space? Yep. New guy question.
One has to ask the question, Are you (Moody’s) Blind?
Most of the retail stores through out the country are discounting heavily 50% - 70% + off regular price on most if not all items. There is no profit in that. If anything, they are barely making enough to make payroll if that. I am sure rent delinquencies are through the roof on most CRE right now but no one is reporting that right now. Look at all the current CRE vacancies through out the country. No profits (Business go KA BOOM) = no payroll (Employee’s go KA BOOM) = no rent to property owner (Bank go KA BOOM and Property owner go KA BOOM) = no taxes (States go KA BOOM)!
This is a make or break time for most retailers this season. After Jan. 1, 2010 there will be a lot of empty retail space out there. Most of these retailers will be gone or on their way to being gone after Jan. 1, 2010.
The writing is on the wall all over the place, but these people (Moody’s et al) just keep wearing those rose-colored glasses. Fair warning to those who choose to ignore the signs and good luck to those who take head.
JMHO.
Retail Sales the raw data
http://www.census.gov/retail/marts/www/img/adv10909.gif (Graph)
http://www.census.gov/retail/marts/www/retail.html (release)
http://www.census.gov/retail/marts/www/download/text/advt1.txt (data text)
http://www.census.gov/retail/marts/www/download/excel/table1.xls (data Excel)
http://www.census.gov/retail/marts/www/timeseries.html (time series data)
Here in Green Bay, Kohls, Younkers (think Macys) and Shopko (think Target) have all in the last two weeks been having 40%-60% off of what seems like practically everything in the store. It's not even haloween yet; WTF are they going to have to do during the Xmas shopping season? This seems to speak to inventories not having 'fallen enough'.
The bull market boosters who use the satisfaction of 401(k) holders concerning the recent 7-month rally are forgetting the anti-euphoria crowd who were tricked into holding so-called risk free savings that are receiving negative returns, including their home equity ATM, as banks leave savers out in the cold.
As for 401(k)s, James Quinn wrote September 9 in “Living in Beverly Hills”: “The consumer is tapped out. The median 401k balance in the U.S. is $26,000. Boomers realize they are 60 years old and have $50,000 of retirement savings and $30,000 of credit card debt.” Even if those 401(k)s double, so what?
Hey, big spender?
Households currently own $8.8 trillion of equities, $7.7 trillion of deposits and cash, and $273 billion of treasury notes and bonds, according to a recent Zero Hedge article “Putting it all Together: Managing Money as You Peer into the Abyss.”
That means that households hold $7.973 trillion in “safe havens” sitting in below-inflation pools, i.e., losers. Bankrate’s weekly survey of large banks and thrifts taken Sept. 2 found that the average return on a 12-month CD has fallen below 1% for the first-time ever--to 0.98% from 1.01% — since the survey began tracking 12-month CD rates in October 1983.
Everyone knows except the government that prices of non-discretionary items— such as on health care and gasoline—are inflating beyond BLS statistics. As for all food, in 2009 the Consumer Price Index “is projected to increase 2.5 to 3.5 percent, as ‘lower commodity and energy costs’ combine with weaker domestic and global economies to pull inflation down from 2008 levels, according to USDA.
“Food-at-home prices are forecast to increase 2.0 to 3.0 percent, while food-away-from-home prices are forecast to increase 3.5 to 4.5 percent in 2009. The all-food CPI increased 5.5 percent between 2007 and 2008, the highest annual increase since 1990. Food-at-home prices increased 6.4 percent, while food-away-from-home prices rose 4.4 percent in 2008.”
http://www.ers.usda.gov/Briefing/cpifoodandexpenditures/consumerpriceindex.htm
ZH readers need to realize that the worst case scenario is NOT playing out. As bad as retail sales were, they are now up sequentially 2 months in a row (or maybe before that, I just recall the past 2 months) even excluding auto's and gasoline. Discretaionary items such as apparel, electronics, hell... even home furnishings grew in the past 2 months. If the consumer is in such bad shape, HOW are retail sales even up? In discretionary items????
As to how the consumer is spending with no income growth and no credit, the problem is with analyzing the "consumer" as a "monolithic entity". The BofA consumer study report (posted on ZH a couple of months ago) segmented the consumer and pointed out that top 10% consumed 40%. The top 10% were NEVER tapped out, they were never in horrible shape. They are spending and spending enough to drag entire retail sales up by smal amounts. Automatic stabilizers are also providing a floor for low income folks so basic spending is holding up.
The asset price re-inflation -> confidence boosting -> spending is working, at least modestly. To deny it is futile. Chalk another "victory" to Bernanke/Geithner. For now this is working.
This WILL end badly, but perhaps not any time soon. The MEW driven binge lasted 4 years from 2003 - 2007, I don't think this will last that long, but could last a little while longer.
The bubble now is in govt treasuries and it manifests itself in the $. As long as they thread the needle with a slowly weakening $ (not a collapse and not a reversal), this bubble can last a while....don't under estimate the power of the printing press.
Unfortunately, the US economy is now an asset price inflation economy. Doesn't produce sustainable growth that benefits the society as a whole, but is driven by inflating assets (pretty much entirely by devaluing the $ in which they are denominated!).
This WILL end badly....timing may not be as soon as people (including me! :( ) expected. In the meantime, short the market at your own peril, a modest amount of economic revival is definitely present, and that allows the market to keep running, fueled by the low $.