Friday, April 9, 2010

More on Yesterday's Retail Sales Numbers

From the LA Times:

The nation's retailers had a blowout month in March as shoppers went on a spending spree that increased sales by a record 9.1%, providing the best monthly showing in at least a decade and offering bold new evidence that a strong economic recovery could be ahead.


More than a dozen major chains posted double-digit gains, including discounter Target Corp., department store Kohl's Corp., luxury chain Saks Inc., mid-priced seller Gap Inc. and teen retailer American Eagle Outfitters Inc. Results are based on sales at stores open at least a year, known as same-store sales, which are considered a reliable measure of a retailer's health.


Of the 28 retailers whose results were tallied by Thomson Reuters, 92% beat sales expectations. The group's 9.1% sales gain was significantly better than the 6.3% increase analysts had been expecting and marked the best month on record since the company began tracking data in 2000.

Although sales results were helped by an earlier Easter and comparisons with a weak March 2009, when sales declined 5%, analysts said the gains reflected real underlying strength. Pent-up demand, warmer weather and broader economic improvement helped drive spending, they said.

"The fact that retailers vastly exceeded already raised expectations suggests to us that there is more going on here," said Ken Perkins, president of research firm Retail Metrics Inc. "The consumer is feeling better about their situation and is more willing to make discretionary purchases than at any time that we've seen in the last couple of years, since the onset of the recession."

A few points.

1.) These numbers are very good and should be viewed in that context. But

2.) They are one months worth of numbers. In addition,

3.) We've only had one month of good employment data, which is probably a big factor in low consumer expectations data. We need at least a few more months of good employment data to say we're seeing a trend of better news. And ever then, there is a tremendous amount of slack in the labor market which will keep wage growth depressed for some time.

All that being said

1.) The evidence is mounting that the "we're all going to die in the fiery puts of hell" school of economic analysis/presenting information/screaming from a blog headline in order to get attention so that you're cited by other blogs, thereby creating a giant "we're all going to die" echo chamber" -- is dead wrong. Consider the following information from the latest Federal Reserve's Minutes:

Available indicators suggested that the labor market might be stabilizing. Declines in private payrolls slowed markedly in recent months, and, in the absence of the snowstorms, private employment probably would have risen in February. The average workweek for production and nonsupervisory workers fell back in February after ticking up in January; however, the drop was likely due to the storms. The unemployment rate was unchanged at 9.7 percent in February, and the labor force participation rate inched up over the past two months. However, the level of initial claims for unemployment insurance benefits remained high.

After increasing briskly in the second half of 2009, industrial production (IP) continued to expand, on net, in the early months of 2010, rising sharply in January and remaining little changed in February despite some adverse effects of the snowstorms. Recent production gains remained broadly based across industries, as firms continued to boost production to meet rising domestic and foreign demand and to slow the pace of inventory liquidation. Capacity utilization in manufacturing rose further, to a level noticeably above its trough in June, but remained well below its longer-run average. As a result, incentives for manufacturing firms to expand production capacity were weak. The available indicators of near-term manufacturing activity pointed to moderate gains in IP in coming months.

Consumer spending continued to move up. Although sales of new automobiles and light trucks softened slightly, on average, in January and February, real outlays for a wide variety of non-auto goods and food services increased appreciably, and real outlays for other services remained on a gradual uptrend. In contrast to the modest recovery in spending, measures of consumer sentiment remained relatively downbeat in February and had improved little, on balance, since a modest rebound last spring. Household income appeared less supportive of spending than at the January meeting, reflecting downward revisions to estimates by the Bureau of Economic Analysis of wages and salaries in the second half of 2009. The ratio of household net worth to income was little changed in the fourth quarter after two consecutive quarters of appreciable gains.

Activity in the housing sector appeared to have flattened out in recent months. Sales of both new and existing homes had turned down, while starts of single-family homes were about unchanged despite the substantial reduction in inventories of unsold new homes. Some of the recent weakness in sales might have been due to transactions that had been pulled forward in anticipation of the originally scheduled expiration of the tax credit for first-time homebuyers in November 2009; nonetheless, the underlying pace of housing demand likely remained weak. The slowdown in sales notwithstanding, housing demand was being supported by low interest rates for conforming fixed-rate 30-year mortgages and reportedly by a perception that real estate values were near their trough.

Real spending on equipment and software increased at a solid pace in the fourth quarter of 2009 and apparently rose further early in the first quarter of 2010. Business outlays for motor vehicles seemed to be holding up after a sharp increase in the fourth quarter, purchases of high-tech equipment appeared to be rising briskly, and incoming data pointed to some firming in outlays on other equipment. The recent gains in investment spending were consistent with improvements in many indicators of business demand. In contrast, conditions in the nonresidential construction sector generally remained poor. Real outlays on structures outside of the drilling and mining sector fell again in the fourth quarter, and nominal expenditures dropped further in January. The weakness was widespread across categories and likely reflected rising vacancy rates, falling property prices, and difficult financing conditions for new projects. However, real spending on drilling and mining structures increased strongly in response to the earlier rebound in oil and natural gas prices.

The pace of inventory liquidation slowed considerably in late 2009. As measured in the national income and product accounts, real nonfarm inventories excluding motor vehicles were drawn down at a much slower pace in the fourth quarter than in each of the preceding two quarters. Available data for January indicated a further small liquidation of real stocks early this year in the manufacturing and wholesale trade sectors. The ratio of book-value inventories to sales (excluding motor vehicles and parts) edged down again in January and stood well below the recent peak recorded near the end of 2008. Inventories remained elevated for equipment, materials, and, to a lesser degree, construction supplies, while inventories of consumer goods and business supplies appeared to be low relative to demand.

While there are concerns going forward (which always exist in any economy the size of the US') there is plenty of good news. And it's not just one sector. Manufacturing is coming around. Consumer spending is picking up. Exports are growing. Businesses are picking up investment. Other countries are getting better. Most of these factors have been completely overlooked at the expense of over-publicizing the bad news. For example, the US manufacturing sector has staged a remarkable comeback over the last year. Yet there is no new of that. Personal PCEs have rebounded as well -- again, no news. The bottom line is there are some damn good economic numbers out there right now, yet no one wants to acknowledge them.