I once dealt cards at a charity poker tournament and was amazed to observe the pile of $1 and $5 dollar bills moved around the table from player to player. Today’s news on retail sales reminded me of that experience, only now the consumer is dealing the cards. Sitting at the table are all the big box retailers vying for a share in a limited pile of ones and five dollar bills.
Wal-Mart (WMT: Q3 .84 cents/per share, expected .81) and Target (TGT: Q3 .81 cents/per share, expected .79) both reported better than expected earnings but it was at the expense of furniture, appliance and hardware stores. Why are general merchandisers doing better than specialty? Simple, you and I have limited resources and are spending hard won CASH on bare essentials and sitting on the rest.
With unemployment now at 10.2%, credit card circulation falling (by 18% just since the beginning of 09) and stimulus winding down, recovery is shifting squarely on to the shoulders of a stressed and stretched consumer.
Indeed, retail sales rose 1.4% in October. But wait, when you exclude automotive sales, retail only grew at a modest .2%. Avoiding a double dip recession will depend on the consumer and how they feel about the their future prospects. Are consumers cautious–optimist or concerned–pragmatist? If the later, we’ll have some ground to cover before business can breath easy.
Black Friday is nearly here, the apex of the retail shopping season. It will be interesting to see the post game results. Not just the percent of growth or retraction, but also the distribution of either success or failure. Will the general merchandiser walk away from the table as the clear cut winner? Or will everybody get a little piece of the pile? Stick around, my analysis will be posted next week.
rwhite35
White House economic adviser Paul Volcker recommended on Monday that the administration shift priority away from consumers on to public works projects as a mechanism for spurring and sustaining U.S. economic growth.
Consumers accounted for 70 – 75% of the U.S. Gross Domestic Product which annually ranges between $40 – $50 trillion dollars. Mr. Volcker suggest that economic growth move from consumption with its pattern of boom/bust cycles, to one of infrastructure projects (electrical grid, highways, communication), green technologies and exports.
This has sub text from Franklin Delano Roosevelt who enacted several programs under his “New Deal” (1933-1945(3 terms)) administration, creating the public works playbook Mr. Volcker now seems to be reading. FDR used big public works projects to help pull the U.S. out of a long protracted depression/recession (1929 – 1941) where unemployment reached 25% and GDP fell about -29% to the lowest levels in 1933.
By comparison, we are sitting at 9.5% unemployment (nationally) and -12% (aggregated) real GDP from Q3-2008(start of consecutive negative quarterly results) through Q3-2009(first positive (3.5%) number in 5 quarters) according to Bureau of Economic Analysis.
Consumers will play a diminished roll in future growth but only because our spending habits have temporarily changed and will likely remain so for some time. However, we are a consumer driven society and while the recession has slowed growth in our voracious appetite for consumption, the jury is out on whether consumers remain penny pinchers in the long term.
Already there are tremors that would suggest we will once again power the economy yet again with our hard won cash. Maybe the impetus begins with new innovation, maybe it comes from wage growth or downward pricing pressures. Regardless, the American consumer is a live and well, even if they are still a bit apprehensive.
rwhite35