There has been a bit of debate as to how weak or strong the U.S. Consumer truly is. Considering that he/she has been acting as the backbone of the global economy, its an important question. So far this year, holiday spending has been mixed.
Perhaps we can blame the National Retail Federation for raising expectations too high. After Balck Friday, they put out survey data which was misleading (it was not actual sales); Their report of an 18.9% sales gain was false, but it was dutifully and lazily reported by the media.
Based on the actual sales data — and not mere surveys of spending intentions — I’ve taken the position that the consumer is in the process of tiring, but not yet spent out. The drop in energy prices has helped a bit — more psychological than actual jingle in pocket — while the decline in Mortgage Equity Withdrawals is a net negative.
Retailers have been nervous, with deep discounting and a plethora of doorbuster items. The net result of these low margin/loss leader items has been pressure on margins and profits. Best Buy (BBY) is the latest example of this.
Today’s Ahead of the Tape column looks into the details:
"Because so much discretionary spending occurs this time of year, holiday sales are an important gauge of the mood of consumers. That casts today’s report on November retail sales in an important light.Economists estimate sales — adjusted for seasonal swings — rose by about 0.2% in November from October, and 0.3% excluding autos. That works out to year-over-year growth of a little more than 4% for both categories, which is pretty tepid. Strip out the volatile gas category, and retail sales look stronger.
For November, estimates are all over the map. The report is one of those volatile monthly statistics that’s hard to gauge. It’s especially tricky because consumers seem to be pushing hard for discounts. It’s difficult to know if buying represents sustained demand or opportunistic deal-hunting."
Its safe to describe Retail Sales so far this season as "mixed." Econoday noted:
"Retail Sales slipped 0.2 percent in October, following a 0.8 percent drop in September but both months were pulled down by sharply lower gasoline prices. Excluding gas station sales, retail sales for October rose 0.4 percent, after a 0.4 percent increase in September. We can still expect some gasoline price weakness in November but will other components in retail sales show moderate strength?"
What is noteworthy about the drop in Gasoline prices is that consumers have not run out and spent it — a surprisingly different tack then their prior behavior. Bloomberg’s Caroline Baum acidly asked the question: Consumer Spending Is Holding Up? You Do the Math. She points out that this is a change in consumer behavior worth noting.
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Retail Sales Data thru November 124, 2006
Graphic courtesy of Barron’s, Haver Analytics
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It is likely that Retail Sales rose in November. I imagine the execs at Best Buy are asking, "At what cost?"
Sustained demand or opportunistic deal-hunting" is the key question
today. And an answer — or at least, a partial, short term answer —
will be heard at 8:30 this morning.
UPDATE: December 13, 2006 9:52am
Retail Sales is out, and its stronger than consensus at +1.0%. I haven’t taken the data apart yet, but Miller Taback’s Peter Boockvar makes these observations:
"On the surface it looks good but
doesn’t fully square with the November same store sales #s which we’ve seen a few weeks
ago.One big factor in the upside was a 4.6% gain in electronics — we saw at
what cost it took to generate that with BBY’s news yesterday [lower margins squeezing profits].Building materials
rose 1.8% — which also doesn’t fit with the negative comps we got from HD and LOW.
The Retail data lowered the odds of a rate cut before April: Fed funds futures contracts indicated a 28% chance yesterday; Traders only see ~20% probability today.
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Sources:
Holiday Sales Watch
JUSTIN LAHART
AHEAD OF THE TAPE
WSJ, December 13, 2006; Page C1
http://online.wsj.com/article/SB116597422290348462.html
Consumer Spending Is Holding Up? You Do the Math
Caroline Baum
Bloomberg, Nov. 15 2006
http://www.bloomberg.com/apps/news?pid=20601039&sid=aqJzNg5ENnsg&refer=columnist_baum
Gas has been riding slowly and constantly in my area. Now up to $2.25. Sure gas is down from the peak summer, but it is going up every week now. Not lost on the consumer.
I’m beginning to have some doubts that the consumerism, witnessed by this morning’s sales release, could weaken enough to be overcome with any downtrend in housing.
Time will tell, but at this point I think it’s beginning to be just a flip of the coin.
It’ll be interesting to see what Roubini has to say about this.
The largest increase in retail sales was at gas stations with a 2.3% increase, but only furniture showed a decline at .1%. The entire breakdown is fairly interesting. Durable goods showed more strength than the last durables number would imply, but food also posted gains.
Formerly posted as mike but so did half the board.
“I’m beginning to have some doubts………..”
The economy will muddle through unless initial jobless claims start heading north. If that happens, and there is no reason at this point to believe it won’t based on historical precedence and how economics unfolds, your doubts will be replaced with greater clarity.
say goodbye to rallies on bad govt numbers
I assume this is an adjusted number. Wouldn’t it be skewed higher by the early Thanksgiving this year?
Can we conclude an inflation rate around 5% from the y-o-y changes in retail sales?
You can prove whatever you want with statistics.
http://macro-man.blogspot.com/2006/12/fun-with-statistics.html
“Balck Friday”, as in shoppers “balcked” at prices after door-buster deals were finished? :-)
The largest increase in retail sales was at gas stations with a 2.3% increase, but only furniture showed a decline at .1%. The entire breakdown is fairly interesting. Durable goods showed more strength than the last durables number would imply, but food also posted gains.
That is the intial, the revised will show more losses, most likely in Durables. During slowdowns, the government becomes VERY slow. Look at 2000’s “intials” and then look at new home sales for example. The sluggish Giant usually swings and misses on the first try.
All in all, after rereading BR’s initial posting, and after pondering many other elements… it’s my personal opinion that this sales report today is a sentence that as yet has no period.
BR,
…A suggestion for a poll question:
Without any comments and without the question being leading or carrying any type of opinion, ask:
Does your primary computer run an operating system from [Apple or Microsoft]*?
*even here I’ve chosen the alphabetical convention in order to avoid any bias. Consequently, I, Eclectic, would not participate in the poll if you elect to create one.
Percentage wise, the biggest gainer in the major categories was Electronics & appliance stores, where sales MoM was a whopping +4.6%. HDTVs?
But we should all note that this data series is quite volatile and prone to revisions as Cherry says, and the early Thankdgiving and thus Black Friday could have contributed as well. Note the 0.8% margin added after the +1.0% in the statistical release.