Retail Sales Now Mirror 2008 Recession

Retail Sales Now Mirror 2008 RecessionThe last time U.S. retail sales fell three consecutive months was back in 2008, when the U.S. economy was in the depths of the recession. Four years later, retail sales have fallen now for three months straight. Are retail sales signaling another recession?

U.S. retail sales fell 0.5% in June from May’s level on expectations of a 0.2% rise. (Source: Commerce Department) For the months of April and May, retail sales fell 0.2% for each month; hence the situation continues to worsen.

Nine of the 13 retail sectors reported a decline in sales for the month of June. The retail sector of Building Materials & Garden Equipment fell 1.6% in June from the previous month, which was one of the bigger declines this retail sector has experienced in some time.

The Furniture and Home Furnishing Stores retail sector saw sales decline by 0.8%, which was its largest drop in a year!

The retail sector of Sporting Goods, Hobby, Books and Music Stores saw sales decline by 1.6% in June from May’s level, while sales at the Department Store retail sector fell 0.7%.

Simply put, all around, this was a terrible U.S. retail sales report.

Excluding the retail sector of car sales, retail sales fell 0.4% on expectations of a rise of 0.1%. Removing cars sales, gas and building materials from the retail sales numbers—core retail sales—one arrives at a better picture of discretionary consumer spending, which fell 0.1% for the month of June.

Not one economist projected retail sales to be down by this much, nor projected there could be such weakness within the retail sectors. But how can such rosy projections be made when real consumer discretionary income has barely registered a pulse in the last year?

One of the reasons why real discretionary income has not risen is that not enough jobs have been created. This is an environment that reflects a recession more than it does a recovery. (See: “Key Indicators Continue to Point to U.S. Recession Ahead.”)

Many corporations within the retail sector are beginning to talk of a general U.S. economic slowdown.

With consumers still saddled with too much debt and incomes not growing, it is no wonder that many retail sectors are weak, bringing down retail sales in general. What is even more troubling about these numbers, and raises the question of a recession, is the fact that weakness in retail sales has occurred while oil prices have fallen.

In the last two months, gas prices have come down roughly 19% from their highs. Usually this savings goes from filling up the car to another retail sector within the economy. Thus far, the retail sector has not benefited.

Consumers are retrenching and are not spending because of the economic uncertainty and threat of recession, but also because they simply don’t have the capacity to spend due to lower real discretionary income.

Yet, throughout all this, the stock market has been complacent. The answer to why the stock market is not falling harder is that the economic numbers are coming in so weak—with a recession a real probability—that everyone assumes the Federal Reserve will begin a third round of quantitative easing (QE3). QE3 is just money printing by another name.

Michael’s Personal Notes:

The National Association for Business Economics (NABE) is a professional organization for business economics that, among other things, conducts surveys of its corporate members.

When its members include large American corporations, one tends to pay attention to its Industry Survey, which is conducted quarterly. The latest survey, conducted in June 2012, reflects deteriorating economic conditions, according to the NABE; translated, this means we could be headed into a recession.

The highlights include the lack of future jobs growth. In the previous survey, 48% of the corporations surveyed said they were going to maintain their employees but not hire anyone else: that means no jobs growth.

In June 2012, 62% of corporations said they were going to maintain the status quo when it came to employment: no jobs growth. This is the lowest reading in over a year! This certainly adds to the credence of a recession brewing, which will not help jobs growth.

Only 39% of respondents expected rising sales at their businesses over the next six months. This was in contrast to the previous reading of 60% and was, once more, the lowest reading in over a year!

Again, with no increase in sales, there can be little jobs growth and certainly these survey results are reflective of a recession and not recovery.

The corporations surveyed now expect GDP growth to come in lower than they expected in 2012, with the average around the two-percent area, which is why the U.S. has experienced no jobs growth.

Here at Profit Confidential, our analysts believe U.S. GDP growth in the third quarter will be below 1.5%, as low jobs growth translates into no income growth and no retail sales.

Due to this pessimism, the NABE survey suggests that no large capital investment projects are going to be initiated in the next six months. This will further prevent jobs growth, and it is reflective of a recessionary environment and not an economic recovery.

I’ve talked often in these pages about what is now being referred to as the “fiscal cliff” in Congress—the repeal of the Bush-era tax cuts and a halt to government spending initiatives instituted at the onset of the recession in 2008 that are set to expire on January 1, 2013.

I have been saying that a portion or combination of these tax cuts and government spending initiatives will be extended or the U.S. will certainly face recession and no jobs growth.

Sixty-five percent of businesses stated that should the fiscal cliff occur, it will impact their sales in 2013 negatively. (See: “America’s ‘Small Business’ Catastrophe.”)

Large and small businesses in this country admit that they will not contribute to jobs growth and keep talking about how sales are falling and how they will not invest in capital projects. This is recession talk. Early this year, I started talking about a recession in America happening in late 2012, early 2013. Each passing day, my prediction gains more certainty.

Where the Market Stands; Where it’s Headed:

We might as well have called today’s issue the “Recession” issue.

Early on this year, Profit Confidential started saying we would enter a recession in 2012, early 2013. Now talk of this is everywhere. Yesterday, Bill Gross, who runs the world’s largest mutual fund, weighed in and said he thought the U.S. was entering a recession. Gross’ name can be added to a slew of others who now have the same opinion.

Unless you own special situation stocks you feel will rise in price, the remaining lifespan for the bear market rally in stocks that started in March of 2009 is very, very limited.

What He Said:

“Why Google stock will go higher: Most investors in Google, surprisingly, are retail investors. And that’s why the stock can go higher—because only 20% of the stock is owned by institutions. If the institutions jump in and buy Google, the stock will certainly move higher.” Michael Lombardi in Profit Confidential, June 2, 2005. Michael recommended Google stock as a buy on June 2, 2005, when the stock was trading at $288.00. On November 5, 2007, when Google reached $700.00 U.S. per share, Michael advised his readers to sell their Google stock and to put the proceeds into gold-related investments. Coincidently, gold bullion was also trading at about $700.00 per ounce in November 2007. Michael’s message was to trade each $700.00 share of Google into $700.00 of gold, because he saw gold as a much better investment.