The fact that consumer spending has not tanked in spite of unemployment being at over nine percent and expected to stay around this level through 2012, and continued weakness in housing is encouraging.
Archive for the ‘retail stocks’ Category
I must admit the fact that consumers continue to spend despite any strong or sustained job growth and continued weakness in housing is encouraging. With consumer spending accounting for two-thirds of GDP, retail sales will eventually be stronger when the jobs and housing areas improve, albeit it will likely take over a year.
So far, even without strong job growth and with continued weakness in housing, consumers continue to spend, which is helping to drive the economic renewal, albeit sluggishly. This is positive and clearly encouraging once the jobs and housing areas improve. The Fed realizes this.
Stocks surged on June 14 after the release of the May Retail Sales reading. The buying on the news would make you think it was a strong reading; but, in reality, the headline number fell 0.2% in May. Investors apparently were excited that it was not as bad as the negative 0.7% reading. Ex-auto, the reading was better than expected at 0.3%, versus the estimate of 0.2%.
Everyone knows that consumer spending drives the economy and gross domestic product (GDP) growth. The headline Retail Sales reading for April jumped 0.5%, which was slightly below the estimate of 0.6% and down from an upwardly revised 0.9% in March. Excluding the auto portion, Retail Sales increased a slightly better than expected 0.6%, although this is lower than the upwardly revised 1.2% in March.
On the plus side, consumers are spending, but the lack of consistency is troublesome. And, given that gasoline prices are high, it reduces the disposable income that consumers have to spend on goods and services. You may not buy that DVD player you had been eyeing. This may not sound like a big deal, but think about it this way: not buying that DVD player has a trickle-down effect as far as spending goes and negatively impacts total spending.
I’m extremely picky when looking at the retail sector. In fact, the majority of investment newsletters suggest avoiding retail stocks. And while I’m not totally in agreement with that view, I would be more selective with stock picking in the retail sector.
Looking at retail? Want the sure-bet plays? My investment advice and best stock advice to you would be to stick with the leading discount bellwether retail stocks, such as Wal-Mart Stores, Inc. (NYSE/WMT) and Costco Wholesale Corporation (NASDAQ/COST).
Costco delivered $348 million, or $0.79 per diluted share, in its fiscal second quarter, up from $299 million in the comparative fiscal second quarter in 2010.
The majority of investment newsletters do not like retail stocks. I’m not totally in agreement with that view, but I would be more selective with stock picking in the retail sector. Retail sales in the U.S. are estimated to surge to $389.65 billion in March from $344.24 billion in January, according to the Financial Forecast Center. Yet, if you go forward a few months, retail sales are predicted to fall to $343.09 billion by September 2011…. Read More