Cart (0)
VIDEOBi-Polar Economic Data Whipsaws Markets
By
James Kostohryz
Mar 05, 2010 12:30 pm
This week, however, the good has outweighed the bad.
 |
|
The Good News
The most positive data released this week relates to retail sales. Negative surprises were feared due to inclement weather. However, retail consumption exceeded expectations by a very wide margin. Sales at stores open for at least a year, a closely watched retail measure, rose 4.1% from the same month a year earlier, according to Retail Metrics Inc. In another measure, sales at stores open at least a year rose 3.7% in February to their highest levels since November 2007, according to the International Council of Shopping Centers. Expectations were for a 2% increase.
(See also, Two Ways to Play: Return of the US Consumer?)
A notable aspect of the February retail sales data was a sharp uptick in sales for upscale and luxury items. The International Council of Shopping Centers said luxury stores sales grew the most in February, 10.9%. Some of the best performances came from the higher-priced brands. Banana Republic (GPS) posted a 6% gain. Nordstrom's (JWN) full-price stores reported a 9.3% increase. Victoria's Secret parent Limited Brands (LTD) enjoyed a 10% increase.
Februrary’s results seem to be part of a building trend, as retail sales have now exceeded year-ago levels in each of the past six months.
The February figures clearly show that consumption is growing faster than income. This is a very strong indication that my theory of normalization (decline) savings rates is proceeding. As I have mentioned in various articles such as Reflexivity and the Stall in the Economic Data, it is my opinion that in the absence of an exogenous shock, such as financial markets instability, consumption patterns are likely to normalize. This is extremely important because, as I pointed out in the aforementioned article, a 2% decline in the savings rate could have a more pronounced stimulative effect on consumption than 200,000 per month payroll gains.
My theory gains support from a survey released Thursday by Kantar Retail that showed a growing willingness among shoppers to spend. About two-thirds of respondents said that the recession had changed their spending habits somewhat or significantly, a major decline compared with three-quarters who said so in August 2008.
Many analysts have predicted that consumption wouldn't improve until net employment and income began to grow. (See Retail Is Still Miles Away From the Road to Recovery). However, it has been my opinion that this view is incorrect. The unemployed make up a relatively small minority of total consumers. It is my view that a revival of consumption can be led, at first, entirely by those consumers that haven't lost their jobs but had simply retrenched their consumption due to fear.
As I expounded upon last week, the main threat to the recovery of private consumption, in my opinion, is an exogenous shock, most likely related to financial markets instability, that could affect consumer sentiment. However, it must be recognized that this hypothesis didn't gain any support from the behavior of consumers in February. Consumers increased their consumption despite declines in the stock market and the attendant negative drumbeat of media commentary about economic prospects. Furthermore, the relationship between measures of consumer sentiment (declined precipitously) and actual consumption (rose significantly), which have historically been rather loose, didn't show any signs of tightening in February.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
