Reversal of fortune: now Gallup's daily spending is near post recession highs

-by New Deal democrat

Less than two weeks ago I wrote that Gallup's YoY consumer spending had turned negative for over a week. This is their daily tracking poll, and it was one of the very few times since the trough of the recession that it was negative on a YoY basis (since it is not seasonally adjusted, this is the only way to track it).

I said at the time that I didn't want to over-sell the data, and that's fortunate because it looks like I unintentionally bottom-ticked it! Since then, not only has it turned around, but as of the last two days is close to the highest it has been, ex-Christmas season, since January 2009, at $75. The only other times it has been this high are two weeks last July and August, and one week in June 2010. It is now $10 higher on a 14-day rolling average than it was last year at this same time. ICSC and Johnson Redbook seem to be showing the same rebound as Gallup does, as of last week.

I wouldn't entirely write off the negative data from two weeks ago, though. Not only did it coincide with ICSC same store sales only being up +1.7% YoY, but we now know that Shoppertrak's same store report was actually negative by a whopping -3.4% YoY that week as well.

In any event, the battle between consumers and high gas prices continues.

Retail Sales Up

The retail sales chart has three important pieces of information.

1.) The free-fall that occurred at the end of last year. After the public learned that Lehman was bankrupt and that the entire financial system was in free fall they literally stopped spending on everything. This is the area of long-gray lines.

2.) The consumer has started to return to the retail sphere. This is the second area of gray lines at the right.

3.) The year over year decline has bottomed. This is the circled area.

The general slant of the latest figure was it was caused by gasoline and car sales. Therefore this isn't a real increase. While I agree that unadjusted gasoline sales helped to increase sales, the increase in auto sales is encouraging. Sales ex-autos were up .3%. The sales increase was obviously caused by the shutdown of dealerships which was part of the GM and Chrysler bankruptcies. However, consumers saw deals and bought them. And they purchased durable goods -- which is also a good thing. People don't go into debt if they don't have some confidence in the future.

More Signs of Bottoming

From the Department of Labor:

In the week ending June 6, the advance figure for seasonally adjusted initial claims was 601,000, a decrease of 24,000 from the previous week's revised figure of 625,000. The 4-week moving average was 621,750, a decrease of 10,500 from the previous week's revised average of 632,250.

The above chart indicates several important points. First, the 4-week moving average topped out in roughly mid-April and has been declining since. That's 6 weeks of a decline --- not enough to say with certainty the trend is clear but enough to say there is a strong possibility the trend has changed. Second, note the total number has been fluctuating between 600,000 and 660,000 or so since late February.

Combine that chart with this one:



And you see the possibility of further declines is more likely than not. This is good because unemployment claims are the front-end of the labor market; claims must drop before we can see improvement in the longer term measures of unemployment.

In addition,

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $340.0 billion, an increase of 0.5 percent (±0.5%)* from the previous month, but 9.6 percent (±0.7%) below May 2008. Total sales for the March through May 2009 period were down 9.7 percent (±0.5%) from the same period a year ago. The March to April 2009 percent change was revised from -0.4 percent (±0.5%)* to -0.2 percent (±0.2%)*.

The above chart divides the last 9 months into two categories.

1.) The end of last year when sales crashed and burned.

2.) The last 5 months when the month over month change fluctuated more around 0% change -- an improvement.

Also note that retail sales increased .5% without car sales.

Bottom line -- this is good news.

Retail Sales Drop

From the Census Bureau:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $337.7 billion, a decrease of 0.4 percent (±0.5%)* from the previous month and 10.1 percent (±0.7%) below April 2008. Total sales for the February through April 2009 period were down 9.2 percent (±0.5%) from the same period a year ago. The February to March 2009 percent change was revised from -1.2 percent (±0.5%) to -1.3 percent (±0.3%).

Retail trade sales were down 0.4 percent (±0.7%)* from March 2009 and 11.4 percent (±0.7%) below last year. Gasoline stations sales were down 36.4 percent (±1.5%) from April 2008 and motor vehicle and parts dealers sales were down 20.7 percent (±2.3%) from last year.

Let's look at some of the individual data points.

1.) March to April sales were down.

2.) Year to date sales are down

3.) February to March sales were revised lower.

Click on all the images for larger images.



The above chart is from the Census report. Notice that in February there was an overall increase. March and April saw a downward move BUT April's move lower was less severe.



This chart is from Econoday. Notice that we have two different areas. The first occurred at the end of last year when the month over month rate of decline was severe . However for the last three months we have seen a less severe rate of decline. In addition, the year over year chart appears to be forming a bottom.

This does not mean we are out of the woods yet. In fact, we are far from out of the woods. The consumer is still losing jobs at a rapid rate, his hours of work are decreasing, he is heavily in debt and his net worth is taking a nosedive. Simply put, this is not the time when consumers will start a new spending binge. But, there are indications the bleeding is stopping, or at least slowing down.

Retail Sales Disappoint

First -- this is without a doubt one of the most useless when issued statistics imaginable. It's not inflation adjusted and the total number includes an entire variety of numbers that make more sense as a solo statistics.

That being said:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $344.4 billion, a decrease of 1.1 percent (±0.5%) from the previous month and 9.4 percent (±0.7%) below March 2008. Total sales for the January through March 2009 period were down 8.8 percent (±0.5%) from the same period a year ago. The January 2009 to February 2009 percent change was revised from -0.1 percent (±0.5%)* to +0.3 percent (±0.3%)*.

Retail trade sales were down 1.1 percent (±0.7%) from February 2009 and 10.7 percent (±0.7%) below last year. Gasoline stations sales were down 34.0 percent (±1.5%) from March 2008 and motor vehicle and parts dealers sales were down 23.5 percent (±2.3%) from last year.

Notice the following points:

-- Sales are down 9.4% from March 2008

-- Sales are down 8.8% from the January - March period of last year

Auto sales are still getting hammered



All of the categories are down year over year. Here is the chart from the St. Louis Fed:



And here's the year over year percentage change

Retail Sales Drop

From Bloomberg:

Purchases at U.S. retailers declined last week as post-Christmas markdowns failed to overcome what may have been the worst holiday shopping season in four decades.

Sales at stores open at least a year dropped 0.8 percent in the seven days through Jan. 3, the International Council of Shopping Centers and Goldman Sachs Group Inc. said today in a statement. ICSC Chief Economist Michael Niemira said November- December sales declined as much as 2 percent.

Macy’s Inc., Talbots Inc., Aeropostale Inc. and other retailers offered discounts of 65 percent or more on some sweaters, jewelry and pants to clear out merchandise after Christmas. Higher markdowns may put more pressure on earnings.

“December was relatively chaotic in price, with more discounts than retailers planned, especially in department stores,” Richard Hastings, a consumer strategist at Global Hunter Securities LLC of Newport Beach, California, said in a telephone interview. “Consumers have discovered that the industry is responding with lower and lower and lower prices.”

This shouldn't be a surprise to anyone; the economy is in a recession after all.

But the charts of the actual sales data are downright scary.



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Above is a graph of real retail sales. Note the cliff diving that is now occurring.

And then there is the year over year change in retail sales:



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That's one hell of a drop

It makes you wonder why



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the retail stock sector is rebounding along with the



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specialty retail sector.

Retail Sales Drop

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Above is the chart from the Census Bureau's release. But, it's not as bad as thought:

With gasoline prices plunging and auto sales on life support, U.S. retail sales dropped 1.8% in November for their fifth straight decline, the Commerce Department reported Friday.

Retail sales -- which account for about a third of final demand -- were down 7.4% compared with a year earlier. In the past three months, sales have fallen 4.7% compared with the previous three months.

.....

But the extent of the decline was exaggerated by a historic drop in retail gasoline prices in November. Excluding the record 14.7% fall in sales at gas stations, retail sales fell just 0.2%.

This drop should not be surprising. The US is in a recession, consumer confidence is low and households are taking major hits to both their stock and real estate portfolios. To that end, notice this huge drop in household wealth from the just released Flow of Funds Report

There is also the possibility things aren't that bad when you take out autos and gas station sales:

However, excluding those two sectors and the weak building-materials industry, retail sales would have increased 0.5% for the month. With the economy losing half a million jobs in November, said J.P. Morgan Chase & Co. economist Michael Feroli, "the most plausible explanation for the increase...is that gasoline prices dropped a record 30% in the month, freeing up purchasing power for those lucky enough to keep their jobs."

The short version here is Christmas probably won't be as bad as people think. But that does not mean consumers are going to go all out either. In addition, my guess is that after the first of the year we're going to see big pull backs as people hunker down for the next few months to see what the new administration does and whether or not it helps.

Retailers Report Terrible November

From the WSJ:

Retailers reported some of the weakest sales figures in years for November, with many missing downbeat expectations, but Wal-Mart Stores Inc. continued its recent outperformance as it topped estimates on increased store traffic and transaction size.

Let's think about this for a minute. Retailers already lowered expectations. And then the sales figures came in lower than the already lowered expectations. That's not good.

Thomson Reuters noted discounters as a whole were the only retail segment expected to post same-store-sales growth for November, thanks to Wal-Mart. In contrast, department stores and apparel chains -- both of which have been struggling for some times -- were seen reporting double-digit declines. Both segments met those expectations.

So -- without Wal-Mart's increase the discounters would have reported worse numbers. That's great news. And the other types of stores all reported bad numbers. This development shouldn't be a problem. Note that personal consumption expenditures have been dropping for some time:



As have retail sales:



Let's take a look at some of the retail sectors to see what the charts say.



The above chart (and the charts that follow) are from Prophet.net. Notice the overall retail sector chart fell off a cliff a few months ago and is currently near 5 year lows.

Notice on the charts that follow of various sub-sectors of the retail area that prices have been dropping for some time:











Bottom line: retail is hurting badly.

Retail Sales: Cliff Diving but a Silver Lining

From Bloomberg:

Retail sales in the U.S. dropped in October by the most on record, pushing the economy toward the worst slump in decades.

The 2.8 percent decrease was the fourth consecutive drop and the biggest since records began in 1992, the Commerce Department said today in Washington. Purchases excluding automobiles also posted their worst performance.

Spending may continue to falter as mounting job losses, plunging stocks and falling home values leave household finances in tatters. Retailers from Best Buy Co. to Nordstrom Inc. are cutting revenue forecasts ahead of what may be the worst holiday shopping season in six years.

``We are in the eye of the storm,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who accurately projected the decline in sales. ``The recession is clearly intensifying. The next few months will look pretty bad. The fourth quarter will be even weaker.''

According to the Census data all areas took a major hit: Autos -5.5%, electronic retailers -2.3%, department stores -1.3%. In other words, the consumer is really cutting back on spending. Here's the relevant graph from the Census information:



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This shouldn't be a surprise. The stock and real estate markets are in terrible shape and the employment picture is horrible. Put these two things together and you get a consumer led contraction.

As a result, several retail sectors are in terrible technical shape, trading at or near multi-year lows:



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However, there is something good emerging from this. When consumers don't spend on stuff they save. And on that front, banks are helping out:

Banks across the U.S. are engaged in a heated competition for deposits as the battered industry tries to shore up its funding sources.

From giant Citigroup Inc. to tiny S&T Bancorp Inc. -- which is based in Indiana, Pa. and has just 55 branches -- banks are responding to uncertain times by sharply increasing the interest rates paid on deposits.

The result is a boon for consumers hungry for higher returns as the stock market lurches. But the moves are causing pain for large and small banks across the U.S. by squeezing their profit margins.

The desire to lure depositors is triggering a "national price war," says Michael Poulos, a partner at financial-services consulting firm Oliver Wyman. "In the past 15 years, there's been nothing like this. The level of competitive intensity is unprecedented right now."

The deposit-collecting binge could help banks build up the funds needed to make new loans. That could help ease the credit crunch choking the economy.

Banks are starting to attract customers the old fashioned way; they are luring people by paying them a meaningful rate on their deposits. Simply put, banks must return to standard, nuts and bolts banking. They need to increased their deposit base to make loans. And the way to do that is to acquire depositors. So while the retail news is bad in the short run, it looks as though an important and fundamental change may be starting. And that's a good thing.

About the Christmas Shopping Season....

Plus



Plus


Plus



Equals this

"October will prove to be a disaster for retail sales, with only the discounters having anything to cheer about," wrote Avery Shenfeld, an economist for CIBC World Markets. "Note that the ex-autos number will partly reflect the drop in nominal gas-station sales on falling pump prices, and will therefore exaggerate the decline in real terms."

Retail Sales Disappoint

From the WSJ:

U.S. retailers largely reported October sales declines in a month that saw consumer confidence plunge amid the nation's financial crisis and spreading layoffs.

The sector's weak performance was no surprise, but nonetheless sets the scene for what is looms as a dismal holiday-shopping season.

Numerous retailers reported sharp declines, led by teen retailer Abercrombie & Fitch Co., which saw a 20% drop in sales at stores open at least a year. Upscale retailers like Abercrombie have been feeling the pain more than lower-end stores, which are showing the best overall strength.

From Bloomberg:

October same-store sales fell 0.9 percent, the first drop in seven months, and 4.2 percent excluding Wal-Mart, the International Council of Shopping Centers said. Excluding the effect of the shifting Easter holiday, it's the first decline since at least 2000, Retail Metrics said.

Many retailers anticipated the economic downturn and have done a ``very good job'' of reducing the amount of merchandise on shelves, even as sales decline, Perkins said. Cost-cutting and lower inventory helped retailers including Gap maintain their profit forecasts today.

None of this should be surprising. Over the last few year consumers have seen real estate prices drop. Then over the last 3-4 months they have seen their other source of wealth -- stocks -- plummet as well. Combine that with a deteriorating job picture and you have record low consumer confidence which leads to a consumer led recession.

Below are charts from Prophet.net of various retail sectors. Note that most are trading at or near multi-year lows. Clicking on all the pictures will give you a larger image.

Consumers are Reigning Spending In

From the WSJ:

As the U.S. economy entered into crisis mode in September, so did the retail sector, ramping up discounts and special offers to entice reluctant shoppers.

But the retailers who reported September sales results Wednesday -- with the exception of Wal-Mart Stores Inc. and other discounters -- are indicating the promotions hardly helped. Many retailers reported worse-than-expected declines, with some -- such as Target Corp. and J.C. Penney Co. --- issuing downbeat estimates for the quarter.

.....

For the most part, the discount sector has been the only one to perform well amid recent economic troubles. Shoppers increasingly have been turning to warehouse and big-box discounters as they try to get the most for their money. Most other sectors have been suffering as shoppers continue to pull back on discretionary items, despite retailers' efforts to lure the bargain-hungry shoppers with greater discounts.

A rise in discount sales at the expense of all other stores is a bad development. It's worse when you consider that 70% of US growth comes from consumer spending.

Consider the following charts.



The simple line chart tells us that real retail sales (inflation-adjusted) have been stalling for some time).



The year over year percentage change shows that retail sales have been dropping hard for some time.



Personal consumption expenditures -- which also include durable goods -- shows the same decline.

The bottom line is the consumer is definitely pulling in his spending.

Retail Sales Surprise on the Upside

From the WSJ:

Shoppers spending their government rebate checks helped push May retail sales higher, giving companies such as Wal-Mart Stores Inc. a bigger-than-expected lift.

The majority of the growth came at discounters, such as Wal-Mart, Costco Wholesale Corp. and BJ's Wholesale Club Inc. Most department stores' sales declined, and sales at clothing chains fell short of forecasts.

IBD added the following:

Cash-strapped consumers flocked to value-oriented retailers known for low prices on necessities like food, but they scrimped on buys at stores that sell nonessentials like clothes.

.....

Department stores and women's apparel chains continued to struggle. Cooler weather hurt sales of summer goods, said Perkins. But consumers just were not in a mood to buy nonessentials.

"We had these ongoing macro drags like $4 gas, rising food prices and a soft job market, which are very much cutting into discretionary spending," he added.

Same-store sales fell 6.5% at specialty apparel stores and 3.5% at department stores, said Michael Niemira, chief economist at the International Council of Shopping Centers.

.....

But overall, the consumer remains very frugal, Niemira said.

Frugality has led consumers to trade down. Middle- to upper-income households, who typically shop at Target (WMT) and elsewhere, are looking more at Wal-Mart, dollar stores and food discounters, says Frank Badillo, senior economist at TNS Retail Forward.

Here is a graph from IBD that shows how various stores did:



While we're talking about retail, let's look at the retail holders ETF to see how retain is doing overall in the market.



Retail -- like most areas of the market -- dropped after the initial shocks from the credit crisis hit the markets in the late summer of 2007. The index crossed below the 200 day SMA at the end of the summer in 2007 and continued to move lower until mid-March of 2008. Looking at the chart there is a double bottom that formed with the first bottom in January and the second in mid-March. Prices have rallied along with the market since the mid-March rally started.



On the 3-month chart, notice the following:

-- Prices are above the 200 day SMA

-- Prices are above all the SMAs

-- Prices are technically in a bullish alignment, with the shorter SMAs above the longer SMAs. But....

-- The 10 and 20 SMAs have been heading lower since the end of April.

-- However, yesterday we saw a big volume move.

Retail Sales Disappoint

From the AP:

The nation's retailers reported the weakest March sales in 13 years on Thursday as consumers -- fretting about mounting economic problems and enduring a frigid Easter -- limited their shopping to food and other essentials.

With prices at the pump rising and worries about jobs increasing, shoppers bought basics at discounters and wholesale clubs and snubbed mall-based chains' clothing, jewelry and furniture. The earliest Easter in 95 years also hurt sales; shoppers weren't in the mood to buy spring clothing in cold weather.

Wal-Mart Stores Inc. and Costco Wholesale Corp. were among the best performers. Wal-Mart raised its earnings outlook, noting that better inventory control helped to limit markdowns on merchandise.

But March proved to be another weak month for many others, including J.C. Penney Co., Gap Inc., and Limited Brands Inc. All of them reported sharp drops in sales.

"Discounters are going to continue to do well in this economy," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "Anything that is discretionary is going to continue to be under pressure."

Here's a link to a sortable chart from the WSJ.

The bottom line is weakening job growth



Rising unemployment (although still at low levels)



Declining disposable income



Leads to lower confidence



And sentiment



Which lowers sales.

Let's take a look at the retail sector chart across a set of time frames



On the five year chart, notice the following:

This is a daily increment chart. Notice how prices are moving around the 200 day SMA. While there is a slight upward slope to the line, this is not the strongest slope we've ever seen. It's as much trading range as it is a rally.



Starting in July of last year, notice the chart starts to move lower in a big way. The chart is making lower lows and lower highs. Also note prices are about 10.6% below the 200 day SMA, indicating we're in a bear market area.



On the three month SMA chart, notice the following:

-- Remember that prices are below the 200 day SMA

-- The shorter SMAs are all moving lower

-- The 10 is below the 50 and the 20 is about to cross below the 50

-- Prices are below all the SMAs

Short version: this chart says sell me.