Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

U.S. Retailers’ Dwindling Fortunes a Signal of Economic Slowdown Ahead?

Tuesday, September 10th, 2013
By for Profit Confidential

economic slowdownWhen retailers in the U.S. economy warn about their sales being in a slump or start to forecast rough roads ahead, it should be a warning to investors of an economic slowdown ahead. The logic behind this is very simple: Retailers in the U.S. economy show trends about consumer spending; if retailers are worried, it means consumer spending is in trouble.

One way to get an idea about bleak consumer spending is by looking at what happens during the peak buying seasons. In the most recent peak buying season, being the back-to-school shopping season, retailers in the U.S. economy were only able to lure in customers by slashing their already low prices.

The president of Retail Metrics (a company that provides estimates of same-store sales), Ken Perkin, said, “They [discounts] seem to be above the norm. That was emblematic of just the lack of demand for back-to-school.” (Source: “U.S. retailers rely on deep discounts to win back-to-school shoppers,” Reuters, September 5, 2013.)

In the very recent past, we have heard from retailers like Wal-Mart Stores, Inc. (NYSE/WMT) and Macy’s, Inc (NYSE/M) about how they are struggling with their sales. And that’s a problem when you have both low-end and higher-end retailers facing similar customer demand issues.

The Cato Corporation (NYSE/CATO) is an apparel and accessory chain founded in 1946. The company reported its same-store sales in August were down two percent compared to the same period a year ago. The CEO of the company, John Cato, said, “August same-store sales were within our range of expectations and consistent with our current trend. We remain cautious in regard to the remainder of the year.” (Source: “Cato Reports August Same-Store Sales Down 2%,” The Cato Corporation web site, September 5, 2013.)

While retailers face soft—and in some cases, declining—demand in consumer spending, I have another concern that doesn’t get much mainstream attention: how the pullback in consumer spending will impact the American jobs market.

Since the beginning of the so-called recovery, we have seen a spur in retail jobs. If we start to see retailers post poor sales because consumer spending is in a slump, jobs created in the low-paying sector will diminish as quickly as they were created.

It’s very simple: we can’t have economic growth in the U.S. economy until the average American Joe starts to spend. When he spends, it creates jobs and it keeps the economic cycle rolling. As I have mentioned many times in these pages, consumer spending makes up more than two-thirds of the U.S. gross domestic product (GDP)—that’s why it’s so important that consumers spend.

Retail stocks are a leading economic indicator. When I look at the retailers today, I see a declining trend in their prices. One of my favorite leading indicator retail stocks to watch is The Gap, Inc. (NYSE/GPS). Its stock price is down roughly 13% off its August highs—not good news at all for this sector.

  • Since the beginning of July through to Friday, the small-cap Russell 2000 Index has tumbled 8%.

    Historically, the Russell 2000 has led the general market lower.

    THE BUBBLE HAS STARTED TO BURST

    A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

    We are predicting this crash will be more devastating than the 1929 crash—the ramifications of which will hit Americans deeper than anything we've ever seen.

    To see proof of why this stock market is headed for a crash and what you need to do to protect yourself (and even profit from it), watch our new warning video here now.

VN:F [1.9.22_1171]
Rating: 10.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: +1 (from 1 vote)
U.S. Retailers’ Dwindling Fortunes a Signal of Economic Slowdown Ahead?, 10.0 out of 10 based on 1 rating

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles