The recent jobs report will help add some consumer confidence to the market; albeit, I doubt it will be enough to drive consumers to the malls or online retail sites to spend. We need to see progressive jobs creation rather than the single reading, and we want to see a positive pattern. If jobs continue to rise, this would likely translate into higher sales in the retail sector.
The problem that, if not solved, would likely have an impact on economic renewal in the retail sector is the lack of jobs. We need to see the unemployment rate decline from the current 7.8% in order to create some serious jobs growth. (Read “Why the Jobs Picture Is a Long Way from Full Recovery.”)
The monthly retail sales numbers in the retail sector are showing some encouraging signs. The Thomson Reuters Same Store Sales index (comprised of 17 U.S. chains) contracted 3.6% in September, which was in line with the estimate, but well down from the 6.4% increase in September 2011. (Source: “U.S. retailers’ September sales up before holiday rush,” Reuters, October 4, 2012.) There’s a lot of work ahead for the retail sector
Consumer confidence in September was encouraging, with a reading of 70.3, above the estimate of 63.0 (source: Briefing.com) and the upward revised 61.3 in August.
Take a closer look. Economists feel a reading of 90 indicates a healthy economy. This has not materialized since December 2007, when the recession began. It looks like it will be some time until the confidence reading heads back towards the pre-recession readings of 90. This cannot be good for the retail sector.
The reality is that when consumers are cautious, they tend to hold back on any major purchases in the retail sector, such as homes, vehicles, furniture, appliances, and travel. This will affect spending, gross domestic product (GDP) growth, and the ability of companies to expand their businesses.
The U.S. durable goods orders reading for August was especially weak after declining 13.2%, well below the estimate of -5.0% and the growth of 4.1% in July. This means consumers aren’t spending on goods and services not deemed essential to daily living.
These are not readings you can get excited about, as far as the retail sector goes.
You also have the hyped-up housing sector that is showing improvement in building and starts, along with a slight rise in home prices. We need to see home prices continue to rise.
Lower home values translate into less home wealth, which leads to less desire in a consumer to want to spend until the situation improves. A strong housing market is important, as homeowners buy new furnishings, including many big-ticket items.
Hence, until we see consistent and strong jobs growth, along with a steady increase in home prices, consumers will likely continue to be hesitant to spend and the retail sector will suffer.
With Black Friday coming up on November 23, consumers need to spend and help to support the economic renewal.