Retail Sales Surprise
The predictions were flying in the lead-up to yesterday’s
announcement by the Commerce Department of August’s retail numbers. Almost
all of them pegged the expected growth rate over July at 0.3 percent. At this
desk, we received at least two press releases that suggested we needed to interview
people because they had knowledge that the numbers would be even lower. The
gloom and doom express was going at full speed.
Today, we know the Commerce
Department came out with its numbers and, surprise, August sales were up a
better-than-expected 0.4 percent compared to July, which had also shown an
increase. The August numbers showed the highest increase in five months and
were up 3.6 percent over the same period last year.
Richard Berner, co-head
of global economics for Morgan Stanley, said too much focus is being put on
how little consumers are spending and too little on how they are improving
their ability to buy as a result of paying down debt.
"The deleveraging timetable is nearly a year ahead of schedule," he
told Bloomberg News.
Robert Doll, vice chairman of BlackRock, told the
news service, "I don’t
think enough credit has been given to that. The U.S. consumer is not dead."
Dominique
Strauss-Kahn, managing director of the International Monetary Fund, told CNBC that
the government’s stimulus spending had helped avert an economic crisis, echoing
other reports in recent weeks.
"I think what the U.S. is doing today is the right thing. I think as
long as they will support (the recovery), finally it will pick up and create
jobs," Mr.
Strauss-Kahn said.
On the subject of jobs, a report last month by the outplacement
firm Challenger, Gray & Christmas, said that while unemployment is high,
the pace of recovery is comparatively strong based on historical terms.
"By most accounts, we are barely a year into the recovery. At this point
in the previous two recoveries — following the 1991 and 2001 recessions —
the job market was actually getting worse. Many people are so caught up looking
at the weekly and monthly numbers, that they fail to look at the bigger trends,
which indicate just how much the job market has improved over the last 12 months,"
said John Challenger, chief executive officer of Challenger, Gray & Christmas,
in a statement.
"I’m not claiming the U.S. consumer has all its problems solved,
but it’s heading in the right direction," Mr. Doll told Bloomberg. "Talk
of the U.S. consumer being in dire straits was too negative."
Discussion Question: Has all the glass half-empty talk on the part of politicians,
analysts and others in the media distorted the true nature of the economic challenges
facing the U.S. and, perhaps, even slowed the recovery?
- Advance Monthly Sales for Retail Trade and Food Services – U.S. Census
Bureau - U.S. Accelerates in 2011 as Demise of Consumer Is Exaggerated – Bloomberg
News - No Double-Dip, Stimulus Did Help: IMF Chief – CNBC
- Current Jobless Recovery Stronger Than After 2001 Recession, according to
a new analysis – Challenger, Gray & Christmas - After 3 months of gains, job cuts plummet to 10-year low – Challenger,
Gray & Christmas
Many retailers have brought on worse economic results for themselves by taking a sledge hammer approach to the economy rather than using a scalpel. SKU rationalization has gone to self destructive levels to the point where consumers that DO have money to spend no longer have ample opportunities to purchase fringe items, premium, specialty, niche, or impulse purchases!
I’m not sure why the naysayers were in full force before the release of yesterday’s numbers. After all, most general merchandisers released their own August comp sales over a week ago, and the numbers were better than expected. There was also other economic data released at the end of August suggesting that the U.S. economy continues to recover–slowly and erratically–from recession instead of falling into “double dip” range.
There is little doubt that negativity can cast a spell not only on consumer sentiment–even though there was a surprising uptick in August as well–but also on equity markets. The entire month of August was marked by a downdrift of stock prices and a mentality of “the end is near.” When sentiment is that sharply negative, it’s probably time to buy stocks and in particular time to focus on the upside potential of retailers and CPG companies.
Two factors are working here. First, consumers are reducing debt and will continue doing so. This will provide more money for consumption and less in interest payments. This we will see in months to come. The second and more important factor is all our old rules of thumb are out the window. The consumer is developing a new buying pattern which we don’t yet understand.
I agree with the previous entry–a “new normal” is developing which will take time to unfurl. However, retailers need to realize that in the long term, a more moderate spending pattern which produces fewer highs and lows is probably better for retail and the economy as a whole than excessive consumption spurred by an economic bubble, followed by a painful crash.
I honestly don’t think the consumer is even listening to the noise from the media. As noted above, consumers are spending money but at the same time paying down debt and socking some away in savings.
We work with retailers in the outlet centers, in malls, and on Main Street, and almost everyone of them is having a very good year. More important they’re very optimistic about the holidays.
Trivial bit of optimism about UK retail – I heard on the radio this morning about a truck driver who tweeted, “I’ve just delivered 147,000 Easter eggs into a warehouse.”
Less optimistic (or more worrying, to me at least), is the comment in George’s piece that paying down debt will encourage people to start spending again. If this means building up more debt then those spenders have obviously not learned very much.
As for people being influenced by media and/or blogs – what else is new? Is that not their entire reason for existing?
.4? Let’s don’t pop the champagne corks yet. Then again people talking in generalities about the “consumer in dire straits” seems equally extreme. Consumers are making choices that trend toward value and re-balancing their balance sheets. No matter which way the macro economic picture goes, I don’t expect that to change dramatically anytime soon.
Negative comments can surely become self-fulfilling (lower inventories, fewer salespeople, etc.). However, the fact remains that the American consumer had gone from a household savings rate of 12% in the early 70s to a negative 1% in 2008. The last number I saw was around 3%. I don’t think anyone is smart enough to figure out where that’s going to settle. The second fact is that, despite the $Trillions thrown at the problem, unemployment hovers around 10%. While it’s nice to see increases, we are still well below 2008 and won’t, IMHO, see much improvement until that improves significantly.
Believe it or not, the consumer is uncertain about the short-term ups and downs of the economy. Having the media continuously focus on the minute by minute swings in the market causes the consumer to flinch as they reach into their wallet. Perhaps we need to “chill out” a bit!
Let’s not blow the trumpets yet! Also in that announcement was that retail sales made up the losses that they experienced last year.
The politicians, analysts and others are having no effect on the retail consumer. The shoppers are experiencing reality. They don’t have unlimited funds to spend, like they thought they did over the last two decades. They have seen a new light in terms of consumption. The baby-boomer led overconsumption profile of the U.S. is over. Look toward the rest of the industrialized world to see where the levels of retail sales will go.
Isn’t it a bit naive to think that consumers are actually gauging their spending decisions on the prognostications of the world wide media?
Real people, unlike markets, react less emotionally and more rationally to current financial realities. If consumers have disposable income or net worth, they spend it.
Real and sustainable growth in consumer spending will only come when their ability to leverage their income and net worth is back in balance. Within that reality there will occur interesting peaks and valleys but over time the trend line may be plotted in parallel to real income growth.
My answer to the question about negativity in the press slowing the recovery is: YES! I don’t know where all these doom and gloom naysayers were in August, but I had back to school shopping to do, and I was floored to see how many people were at the mall–and carrying shopping bags. My local mall was so packed I almost had to park in the holiday overflow parking lot.
Consumers are spending. Their priorities might be different, and the benefits that they may be looking for from purchases might have changed, but they’re out there.
I think all this goes to show is that we can all look at the numbers all we want, but none of us really “knows” anything.
I’m not really giving much credence to the monthly retail numbers.
I’m essentially tracking two figures–unemployment and personal savings rates. As long as they’re both up year on year retail will be a little choppy.
We always seem to forget too that we’re comping against a horrible year in 2009. Being better than bad isn’t good–it’s just better. If we’re really being fair, we should be comping against pre-recession numbers.
Robert Doll is correct. The “consumer is NOT dead”. They are focused on living their lives in a highly uncertain period of time. Employment figures, retirement savings, housing prices, friends and associates who have been impacted negatively in the past 3 years all have made a mark.
Consumers are behaving much like business and numerous other organizations (numerous government bodies, not included, but a topic for another conversation). Consumers have been deleveraging over the past 24 to 36 months. They are Paying down debt, saving more, acting opportunistically when they need to, focusing on needs over wants, and monitoring employment and confidence points (theirs and others), in order to keep moving forward.
I think there’s plenty of pent up demand that’s driving a little “damn the torpedoes” mentality which is improving retail sales a bit. But, come on, .4 percent ain’t exactly rockin’ and rollin’. Unfortunately, with government spending at an all time high and tax increases looming big business is holding onto cash at an alarming rate. There’s a lot of planning going on, but not much implementation. The result of this inactivity trickles down through the economy giving the rest of us high unemployment and an uneasy feeling about the future. When the political environment stabilizes, big business will begin to feel comfortable moving ahead which will bring relief to the rest of us. Until then we’re going to be treading water, and hopefully not drowning.
Fear not (or actually fear quite a bit): one of the hundreds of tea leaves that “experts” worry over will be “worse than expected” in the coming weeks/months and the Gloomndoom Express will be at full speed again.
Trying to adjust sales strategy based on these indicators would not be helpful–too many short-term influences shifting things enough to be noticeable, but is it enough to make a big difference in your decision making? We know shoppers are looking for value, and will continue to do so, but they are still spending in some categories. The fundamentals are there for well run organizations to keep going on their path. Now is the time to talk with your suppliers, your employees and your key consumers.
If its true that Americans are “World Class Consumers,” then we should count on that as a trait in our retail efforts. We believe people have grown tired of holding back on their favorite pastime…shopping. This trait is underrated by economists everywhere IMHO.
However, they are now looking for practical products. Luxury items are not as sought after these days.
The news media is all about ratings. The truth or good hard facts don’t make ratings. Who listens to those talking heads anymore? We do but with little concern for their message.
Finally, thanks to all those who take the time to write in here. This is a valuable site, worthy of my attention. Thanks.