Thursday, December 02, 2010
I have been observing locally and anecdotally for some weeks that there seem to be a great number of people out shopping, perhaps more than I would expect, given the significant economic uncertainties the U.S. and the major world economies are facing. That observation was validated today when retail sales were reported:
Major retailers reported sales in November that were stronger than analysts expected. Increased spending during the holiday season would be a strong signal that consumers are feeling more confident.Since consumers are presumably no longer using the equity in their homes as an ATM (as was the case for much of the past decade, before 2008), there must be enough personal liquidity to help fund increased retail purchases. The increases are off of relatively weak baselines, so it is perhaps not the best of times, and certainly not if you happen to be part of the still high unemployment statistic.
"Any sign that the consumer is doing better means that the economy will be doing better," said Drew Matus, a senior economist at UBS.
Costco Wholesale Corp., Target Corp. and Limited Brands Inc. all beat Wall Street sales forecasts. Teen retailer Abercrombie & Fitch Co. jumped 11 percent after reporting that its sales soared 32 percent.
"The consumer is strong and month after month retailing has been very strong," said Ryan Detrick, the chief technical strategist at Schaeffer's Investment Research. "If you take a step back it's clear that the U.S. economy continues to slowly expand."
Still, this is probably the best Christmas present the Obama administration could receive -- that good retail sales could support a number of consecutive quarters of reasonable GDP growth, and that the trend will continue during 2011. An economy tumbling back into recession would not be the best backdrop for the start of a re-election campaign. However,the difference between a weak month or quarter and a strong month or quarter can be thin. I am always reminded of the Crash Davis analysis in Bull Durham on the margin of excellence:
You know what the difference is between hitting .250 and hitting .300? I got it figured out. Twenty-five hits a year in 500 at bats is 50 points. Okay? There's 6 months in a season, that's about 25 weeks -- you get one extra flare a week--just one--a gork, a ground ball with eyes, a dying quail-- just one more dying quail a week and you're in Yankee Stadium!It is actually not all that different for many retailers (especially small shops) -- a couple of extra big customers per week walk in and lay a Platinum card on the counter, and it is the difference between a good month and a so-so one.
One hopes that consumers are spending their money in a responsible and prudent fashion. Once bitten, twice shy, and all that. I will not root against the American consumer, regardless of which party or candidates derive benefit from consumer strength or weakness. At a minimum, though, President Obama will need sustained positive GDP growth in the second half of 2011 and into 2012 to have a solid chance of defeating the Republican nominee, and for him to duplicate his point spread vs. McCain in 2008, he will need robust growth and a weak opponent.
Anon Attorney here. I saw a study published a few months ago which demonstrated that, contrary to popular perception, consumers are not entering an austerity mode. Rather, they are purposefully maxing out unsecured (read: credit card) debt before heading into bankruptcy. In a word, they are behaving as rational economic animals.
This might help explain your observations.
Same-store sales is misleading, because it takes out how many stores were closed or competitors in backruptcy.
So if Best Buy's sales are up, but Circuit City is bankrupt, you can still have flat sales overall ...
The metric to watch is state sales tax receipts, because that is neutral overall.
For more on the topic, Mike Shedlock's blog has excellent posts from time-to-time, globaleconomicanalysis.blogspot.com.
How does a retail customer buying a "Made In China" item boost the economy?
The reason that real unemployment (not the fudged Gov't number) is around 1 out of 6 is that items which used to be made in the US are now "Made in China" -- and in India, and in Germany; even in Vietnam! This leaves the US with high unemployment, a high trade deficit, reduced tax revenues, and a mounting national debt.
The economy will turn around when we re-industrialize the US. And the main obstacle to that is self-imposed Gov't bureaucracy, excessive regulation, and the plague of lawyers.