We all know consumer spending in the U.S. accounts for 70% of Gross Domestic Product (GDP).
If the U.S. economic recovery is to gain any traction in 2012, the U.S. consumer is going to have to play a major role. However, the latest retail sales figures for the month of December rose just 0.1% (Source: U.S. Commerce Department), which was weaker than analysts expected. But this is only the headline number!
If purchases of cars are excluded from the retail sales numbers, then retail sales actually fell 0.2%, which is the first month-over-month decline in retail sales since May 2010. Let’s keep in mind that this drop occurred during what is traditionally a great month for retailers: the holiday season. The so called “economic recovery” isn’t there!
Digging deeper—again keeping in mind that this was during the holidays—consumer spending at electronics and appliance stores fell 3.9%, while department stores sales slipped 0.2%. What economic recovery?
This is an ominous sign that retail sales and economic recovery will continue to be challenges in 2012.
Of course, there can be no improvement in retail sales if we don’t have jobs.
Remember those “glowing” job reports from the last two months: 120,000 jobs created in November 2011 and 200,000 in December 2011? Temporary hiring by retailers for the holiday season boosted those numbers. Now that the holiday season is behind us, guess what? Unemployment claims jumped by 24,000 in the first week of January. So much for that economic recovery hope we had from the December job numbers. (Also see: December U.S. Job Numbers Disappoint.)
As if this weren’t bad enough, these numbers occurred during a time when U.S. consumer credit continued to grow, in November of 2011. The U.S. consumer borrowed $20.4 billion more in November, which was the biggest month-over-month jump since November of 2001.
Granted, $14.8 billion of this money went to finance educational loans, and loans for cars and mobile homes, but, without a doubt, a large part of the remaining $5.6 billion went towards holiday purchases.
So let’s add this up. We have consumers borrowing at a very fast pace; yet, despite this, retail sales were down in December (when one excludes automobiles from the numbers). Unemployment claims for December were higher than originally thought, and those temporary workers are now being laid off. There is no economic recovery.
Obviously, consumers can’t continue to borrow at such a rapid rate to maintain their spending habits. What does that mean for retail sales going forward in 2012? Not an equation for a U.S. economic recovery.
Combine this with fewer full-time jobs and more layoffs, and that theory about the U.S. recovery being able to hold in spite of the woes in Europe becomes more and more tenuous with each passing day.
U.S. retail stocks…I’m staying away from them this year.
Michael’s Personal Notes:
On the topic of economic recovery, let’s check in on how the economies of China and the remainder of the world are faring.
To be blunt, as if Europe wasn’t enough to worry about, news out of Asia is pointing to at least an economic slowdown in the region’s rate of growth.
China reported that, due to the global economic crisis, its export growth slowed sharply in the final quarter of 2011. Is there a pattern developing?
In 2010, Chinese exports rose 31.3% from the previous year. In 2011, Chinese exports rose 20.3% from the previous year. In 2012, Chinese exports are expected to rise just 11% from the previous year, according to Lombardi Financial. This looks like and smells like an economic slowdown.
A senior government researcher in China believes that GDP could rise just 8.5% in China this year, which would be the lowest reading since 2001. This on the heels of news that China’s manufacturing output fell for the first time in almost three years in November, with December showing only a slight improvement. Yes, there is an economic slowdown going on in China.
In the meantime, China’s imports slowed markedly in 2011 from 2010, as consumers in China spent less. This means that, if the world is looking for Chinese consumers to pick up some of the slack from European and U.S. consumers, don’t hold your breath. The economic slowdown in China has already hit consumer spending there.
Although the official numbers have not yet been released, it looks like economic growth in Singapore (a star performer in 2010) will come in at the four percent to seven percent range for 2011, down from 14. 5% in 2010! For 2012, the Prime Minister of Singapore is expecting economic growth in the one percent to three percent range only. There’s an economic slowdown going on in Singapore, too!
For 2012, the central bank of South Korea has already cut its growth forecast to 3.7% from 4.6%, and we just started the year! Stop me if you’ve heard this before, but the revision is blamed squarely on the global economic crisis. Economic slowdown in South Korea, too!
Central banks around the world—not only Asia—tend to be more optimistic about economic prospects, so what are the odds that economic growth forecasts will continue to be cut as 2012 rolls along? I believe the odds are very high.
There can be no doubt that the export-led economies in East Asia that depend on Europe and the U.S. for their growth are witnessing a contraction. I’m calling it economic slowdown for now in Asia; it could easily become an economic contraction.
The cause and effect scenario is simple. Asia depends on U.S. and European consumers for its export growth. However, European countries are importing less, because demand is being restrained by the austerity measures implemented throughout the region. The U.S. is showing signs of slowing as well and so, with waning consumer demand, imports from Asia will inevitably drop. An economic slowdown worldwide in 2012 is inevitable. (Also see: Payback Time: Europe to Export a Recession to America.)
This is turning into a vicious spiral: weak job growth in the West leads to weak consumer demand in the West, which results in fewer imports required, hurting the exporting nations of Asia, whose consumers then lose their jobs.
Large corporations, which are hoarding billions of dollars in cash, are reluctant to invest in major project initiatives—an important source of job growth—because they don’t see where demand is going to come from. Any wonder I’m calling for a worldwide economic slowdown this year?
Where the Market Stands; Where it’s Headed:
The Dow Jones Industrial Average inched out another small gain yesterday, pushing stocks up 2.1% so far for 2012.
I’ve said it a thousand times before: We are in a bear market rally in stocks that started in March of 2009. Phase II bear market rallies can go on for three to four years. This rally still has life left, albeit limited.
What He Said:
“The Dow Jones Industrial Average, the S&P 500 and the other major stock market indices finished yesterday with the best two-day showing since 2002. I’m looking at the market rally of the past two days as a classic stock market bear trap. As the economy gets closer to contraction, 2008 will likely be a most challenging economic year for Americans.” Michael Lombardi in PROFIT CONFIDENTIAL, November 29, 2007. The Dow Jones Industrial peaked at 14,279 in October 2007. A “sucker’s” rally developed in November 2007, which Michael quickly classified as a bear trap for his readers. By mid-November 2008, the Dow Jones Industrial Average was at 8,726.