Retail Sales and the American Spender in Review and a ‘Speculative’ Outlook

 

Retail sales quarterly numbers 2005-2012
Retail sales quarterly numbers 2005-2012, which peaked at close to $400billion in the first quarter of 2012

On Tuesday of this past week, the Commerce Department’s retail sales figures were released, coming in at a growth rate of 0.8 percent (about 9.7 percent on an annualized basis), with retail sales excluding motor vehicle parts and dealers also coming in at 0.8 percent (about 9.8 percent on an annualized basis).  The results generally beat analysts’ estimates by about half a percent, and put upward pressure on equity prices.

What do the recent figures reveal about the American consumer?  First, we learned that the summer months don’t necessarily portend a poor fall, with the 0.8 percent August growth number ending three months of declining sales (July was down 0.7 percent, June was down 0.1 percent, and May was down 0.5 percent).  Second, we learned that the American consumer continues to teeter on the border of expansion and slowdown.

How did Monday’s retail sales figures affect the top 10 retailers’ stock prices?  Well, it’s tough to extract out the aggregate retail sales effect from other factors, although, we do know a few things.

First, Sears Holdings Corporation (NASDAQ:SHLD), which does the most back-to-school business of the others in the top 10 experienced the largest increase in Retail sales and Best Buy Walmart

equity price appreciation, ending the week up 9.4 percent, followed by The Home Depot, Inc. (NYSE:HD) (up 7.4 percent for the week),  Lowe’s Companies, Inc. (NYSE:LOW) (up 5.0 percent for the week), Best Buy Co., Inc. (NYSE:BBY) (up 4.1 percent for the week), and Target (up 2.6 percent for the week).  Second, as shown by the return of the top building and garden retailers, the market thinks the August retail sales figures are an indication of a bottoming the retail sales arena, rather than a blip in a downward trend.  Third, the market didn’t reward the top two retailers – Wal-Mart Stores, Inc. (NYSE:WMT) and Kroger – pushing their stocks down 1.9 percent and 1.8 percent for the week. CVS Caremark Corporation (NYSE:CVS), The Kroger Co. (NYSE:KR), Walgreen Company (NYSE:WAG) and Costco Wholesale Corporation (NASDAQ:COST)  all were in the ‘in-between’ range.

With this background in mind, what do the recent numbers mean overall for the health of the American consumer?  Well, the first thing that comes to mind is that real aggregate retail sales per capita are still below their pre-recession highs, and not by just a little bit.  So, in general, the American spender is still looking for a good bargain, which is also evidenced by the recent lackluster sales figures of the likes of Saks Inc (NYSE:SKS), Nordstrom, Inc. (NYSE:JWN), and other luxury retailers.  In fact, the lackluster performance of the high end retailer is a sign of poor things to come.

I wonder how much of the bland performance of many higher end retailers is due to politics, i.e. high end consumers don’t want to do anything to help out President Obama and his class warfare politics. The effect can’t be too large, can it?  Then again, higher end consumers were a large contributor to the most recent economic downturn and subsequent recovery.

In any event, overall the retail sales numbers came in pretty good, although professionals are generally concerned about the long term strength of the American consumer.