Companies that cater to the public by selling various goods are called retailers. This encompasses both large and small stores. Investors look at fashion trends, sales per square feet, the potential to open more stores, inventory levels, and same-store sales data, as well as the ability of retailers to generate loyalty among their customers. Looking at them as a whole, retailers can provide a general idea about consumer spending. If they are selling more, it is considered to be a good sign; when they are selling less, it means consumers are struggling, and there may be rough roads ahead for the economy.
In the first quarter of 2014, Retail Metrics, a retail industry research firm, found U.S. retailers missed their corporate earnings estimates by the most since the year 2000!
As I have been writing, consumer spending only increases when consumer confidence is rising. Unfortunately, in the U.S. economy today, that confidence is plummeting.
Last month, the Thomson Reuters/University of Michigan’s consumer sentiment index declined three percent from a month earlier. It was 84.1 in April, and it declined to 81.8 in May. (Source: Reuters, May 16, 2014.)
But consumer confidence is just one leading indicator that suggests consumer spending will decline in the U.S. economy; the unemployment situation and wages suggest the same.
The worst kept secret on Wall Street is that the big U.S. retailers are in trouble. While stocks, in general, have held their own this year (up about one percent so far in 2014), the stock prices of retail stores have fallen sharply. The chart below is of the Dow Jones U.S. General Retailers Index. The chart clearly shows the stock price of big U.S. retailers are falling quickly, down more than seven percent in the first five months of this year.
Chart courtesy of www.StockCharts.com
The story that consumer spending suffered in the first quarter of this year because of bad weather doesn’t sit well with me—I simply don’t buy it. The U.S. economy contracted one percent in the first quarter of 2014, the first time our economy has experienced an “official” contraction since the first quarter of 2011 for the simple reason that consumers are tapped out; their incomes are not keeping up with inflation.
All … Read More
Straggling earnings reports are revealing more weather-related issues for specific industries (home improvement, for example), but several retailers have been posting really good numbers.
Tiffany & Co. (TIF) soared on news of its fiscal first quarter producing global sales growth of a solid 13% to $1.0 billion. Bottom-line earnings grew a whopping 50% to $126 million, or $0.97 per diluted share—41% excluding one-time expenses—over the same quarter of the previous fiscal year.
Some of the surprising sales growth came from Europe, with a nine-percent comparable gain to $101 million, and from Japan, which saw sales improve 20% to $174 million.
On a constant currency basis, the Americas region produced increasing sales of nine percent and comparable store growth of eight percent to $439 million.
As a result, company management increased its earnings range for the fiscal year ending January 31, 2015 to between $4.15 and $4.25 per diluted share, up from the previous earnings range of $4.05 to $4.15 per diluted share.
The Street bid the stock nine percent, or about $8.00 a share, on the financial report.
And another higher-end retailer reported very good earnings, as well, seeing its stock move nicely higher on the news.
Williams-Sonoma Inc. (WSM) raised its full-year fiscal 2014 earnings forecast after producing first-quarter net revenue growth of 9.7% to $974 million.
The company is having very good success growing its direct-to-consumer business, which improved 17% in the first quarter, representing half of all revenues.
The company’s operating margin grew during the latest quarter, and diluted earnings per share grew 20% to $0.48, or $46.2 million in total.
These are solid numbers from two … Read More
An economy is said to be technically in a recession when it experiences two consecutive quarters of negative gross domestic product (GDP) growth.
The biggest portion of the U.S. GDP calculation is consumer spending; then comes investments, government spending, and, finally, net of exports. By far, consumer spending is the biggest factor in calculating GDP. All you need is a slight decline in consumer spending for GDP to fall.
And as it stands, consumer spending in the U.S. economy is on the decline. In 2013, it accounted for nearly 70% of GDP, meaning that for every $1.00 increase in GDP, $0.70 was associated with consumer spending.
Since November, consumer spending for durable goods (goods that can last for a long time, like a T.V. or furniture) declined by 3.23%. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 22, 2014.)
When we look at sales at retailers in the U.S. economy, they keep telling the same story: U.S. consumers are tapped out. Of 175 retailers tracked by FactSet, more than half of them have reported store sales in the fourth quarter of 2013 that were below market expectations. (Source: FactSet, April 11, 2014.)
So far, for the first quarter of 2014, 20 of the major retailers have provided negative guidance regarding their sales and only nine have issued positive guidance. For the entire 2014 year, 31 retailers have issued negative guidance about their sales and only 15 have issued positive guidance. (Source: Ibid.)
There is a clear sign of declining retail sales. In 2011, same-store sales grew by 2.9%; in 2012, they increased by 2.6%; … Read More
In 2013, consumer spending accounted for 67% of U.S. gross domestic product. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 2, 2014.) It’s plain and simple: economic growth cannot be achieved unless consumers are spending.
And unfortunately, higher prices and lower discretionary spending are putting the brakes on consumer spending here in 2014.
The Motion Picture Association of America says box office sales in the U.S. economy came in at $10.9 billion in 2013—up only one percent from 2012 and up just three percent from 2009. But here comes the kicker: the sales increase was due to higher ticket prices. The number of tickets sold for Hollywood movies in 2013 was down 1.5% from 2012 and six percent from 2009! (Source: Motion Picture Association of America, Inc., March 25, 2014.)
And the U.S. housing market is getting into trouble, too, as consumer spending pulls back. The chart below is of new-home sales in the U.S. economy from the spring of 2012 until now.
You will quickly see from the chart that new-home sales in the U.S. economy peaked in late 2012/early 2013 and have come down since. Existing-home sales are also under stress and well below their post-Credit Crisis peak.
Why does the housing market matter? When homebuyers move into their new homes, they buy things like lawnmowers, appliances, furniture, and more. With home sales declining, it suggests consumer spending on these items will not be robust in 2014.
Dear reader, consumer spending patterns in the U.S. economy show troubling trends in the making. Sure, I talked today about how movie tickets … Read More
Is the Federal Reserve ignoring the very basic law of economics…the law of diminishing marginal utility? You remember that term from economics in high school. The law of diminishing marginal utility states that the more of something you have, the lesser its impact on you.
The Fed has been printing money in hopes of stimulating growth in the U.S. economy. As the Fed printed more paper money, its balance sheet grew to over $4.0 trillion.
Below, I’ve made a table that looks at gross domestic product (GDP) growth in the U.S. each year since 2009, and where the balance sheet of our central bank stood at the end of each year.
In the table below, you will notice something interesting; aside from 2009, there is no real correlation between the increases in the assets (paper money printed) on the Fed’s balance sheet and GDP growth. In fact, after all the money the Fed has printed, the U.S. economy grew last year at its slowest pace since 2011.
U.S. GDP Growth vs. Growth in Size of Fed Balance Sheet
|Fed Balance Sheet (Trillions)||YOY Change in Balance Sheet|
Data source: Federal Reserve Bank of St. Louis web site,
last accessed April 1, 2014.
The Federal Reserve predicts the U.S. GDP in 2014 will increase between 2.8% and three percent; that’s a jump of about 50% since 2013. (Source: Federal Reserve, March 19, 2014.) I believe this to be way too optimistic. (And as we … Read More
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