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Visualizing Household Deleveraging

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Household debt has declined for seven consecutive quarters while demand for consumer credit has declined by more than $120 billion since the beginning of 2009. This is what deleveraging looks like.

Via Bloomberg:

Bloomberg economist Joseph Brusuelas this morning points out that real personal disposable income has contracted by 0.2% year-over-year and once government transfers are stripped out is still down 0.1%. However, he notes, there has been a meaningful increase in real personal disposable income over the past two quarters and even wages and salaries posted their first quarterly since the third quarter of 2008. The problem, of course, is that without meaningful, sustained improvement in employment those gains will quickly be reversed. Where will those jobs come from?

Meanwhile, all we have to do is take a year-to-date look at various retailers to get a sense of the impact of consumer deleveraging on their stock prices.

Amazon (AMZN) is down 12.5% year-to-date, WalMart (WMT) is down 2.6% year-to-date and Costco (COST) is down 3.6% year-to-date. Not awful, but all three severely underperforming the broad market. The S&P 500 is down less than half a percent.

Two interesting outliers? BJ's Wholesale Club (BJ), up 38.5% year-to-date and Family Dollar Stores (FDO), up 49.6% year-to-date.

Back in May, BJ was among the companies reporting a negative impact of deflation on merchandise sales in the range of 0.5% to 1%, lower than the 2.5% to 3% deflation seen in the fourth quarter, though they still reported seeing some deflation cycling into the second quarter. The company is scheduled report again August 18, with sales and revenue released August 8.

More recently, in early July Family Dollar Stores reported strong increases in consumer traffic, which allowed the company to reduce markdowns. However, the company did note that they continue to see consumers purchasing "closer to need" than want, meaning discretionary purchases are still being victimized by the deleveraging and weak job markets noted above.
POSITION:  No positions in stocks mentioned.