Why I’m So Cautious About 2014

170114_PC_lombardiDon’t for a second believe consumer spending in the U.S. economy is improving!

J. C. Penney Company, Inc. (NYSE/JCP) has announced it will be closing 33 stores in the U.S. economy. By doing this, the retailer will save about $65.0 million a year starting in 2014. 2,000 employees will be let go. (Source: J. C. Penney Company, Inc., January 15, 2014.)

Macy’s, Inc. (NYSE/M) is also closing stores.

Best Buy Co., Inc. (NYSE/ BBY) reported that for the nine-week period ended January 4, its comparable sales declined 0.8% from the same period a year ago. The CEO of the company, Hubert Joly, said, “…our holiday revenues were negatively impacted by a number of factors, including: (1) the aggressive promotional activity in the retail industry during the holiday period; (2) supply constraints for key products; (3) significant store traffic declines between “Power Week” and Christmas; and (4) a disappointing mobile phone market.” (Source: “Best Buy Announces Holiday Revenue Results,” Best Buy Co., Inc., January 16, 2014.)

Target Corporation (NYSE/TGT) is another retailer that’s been hurt by dismal consumer spending in the U.S. economy. The company expects a decline of 2.5% in its fourth-quarter comparable sales. Target has also lowered its corporate earnings guidance for the fourth quarter; it now expects to report earnings of between $1.20 and $1.30 per share. Previously, it stated its corporate earnings in the fourth quarter would be between $1.50 and $1.60 a share. The company also plans to close eight stores in the U.S. economy. (Source: Target Corporation, January 10, 2014.)

Each day, it is becoming more evident that consumer spending, which makes up about two-thirds of gross domestic product (GDP) in the U.S. economy, is getting weak. Comments and public statements from executives at large American retailers back this argument. Auto sales are pretty much the one place where consumer spending looks robust, but the great majority of cars being bought in the U.S. economy are with borrowed money and delinquencies on sub-prime borrowers in the auto sector are rising. (See “Why Are Car Sales Down So Much?”)

It’s no coincidence that the stock market has just put in its worst start to a year since 2005. Yes, consumer spending is declining (which will eventually hit corporate profits and stock prices), but economies around the world are experiencing slow economic growth, U.S. jobs growth is pathetic, and interest rates are rising.

Actually, if you take out the stock market rally of the past couple years, there isn’t much growth in the U.S. economy. I continue to be very cautious about 2014.