Retail sales refer to the level of goods and services that are sold to the public. Retail sales are an important economic metric, since so much of the total economic activity in the U.S. is derived from domestic consumption. Some analysts also watch same-store sales, which is a derivation of retail sales. While retail sales measure the total, aggregate level, same-store sales measure the change in retail sales for a store that has been opened for a certain period of time, usually one year. Retail sales can be an early indicator that an economy is recovering, or a warning if the numbers drop dramatically.
You can tell a lot about the pulse of the economy by examining the retail sales and restaurant sector. When people are working and making money, they tend to be more confident and want to spend, especially non-discretionary spending.
In the fast-food restaurant sector, the “Best of Breed” is McDonalds Corporation (NYSE/MCD).
The company has numerous rivals and the sector is extremely competitive, but there is no real and valid threat on the horizon for McDonalds that could affect it.
Characterized by its familiar “golden arches,” which are sometimes visible from miles away, the company is a true American icon, just like General Motors Company (NYSE/GM).
Yet McDonalds is also a decent indicator on how the United States and global economy are faring.
The current level and valuation of stocks suggest everything is going well and on target with the global economy.
But, sorry to break it to you: the path to sustained economic renewal is still filled with potholes.
As I’ve previously written in these pages, the global economy and performance of the stock markets have been built by the easy money injected into the global monetary system by the world’s central banks, including our friends at the Federal Reserve.
So when I begin to see slowing at some of the key multinational companies, I wonder about the condition of the global economy.
McDonalds is a decent barometer on the global economy and, based on what I’m seeing, I sense there’s some stalling in the global economy.
In the first-quarter earnings season, McDonalds reported a marginal one-percent rise in its consolidated revenues due to the slowing in Europe and … Read More
Consumers appear to be holding back on buying non-essential goods, and this could impact the economic recovery.
The durable goods orders contracted a dismal 5.7% in March, according to the United States Census Bureau, representing the largest decline in seven months—a far cry from the 4.3% rise in February and well below the Briefing.com estimate calling for a four percent decline.
Taking out the volatile transportation portion, durable goods fell 1.4%, versus the Briefing.com estimate of -0.1%, equaling the second straight month of declines.
The durable goods readings have largely been inconsistent, as reflected in the chart below, and suggest the economic recovery may be at risk.
Chart copyright © Lombardi Publishing Corporation, 2013;
Data source: United States Census Bureau, April 25, 2013
When consumers are more confident, they tend to spend more on major purchases in the retail sector, such as homes, vehicles, furniture, appliances, and travel. This will impact the economic recovery, gross domestic product (GDP) growth, and the ability of companies to expand their businesses.
But whether it’s the added taxes or the fragile confidence from the lack of strong jobs growth, the decline in the demand for goods that are deemed non-essential should be a red flag that not everything is proceeding along smoothly, which could affect the economic recovery.
The fact remains that jobs creation is fragile and not expected to ratchet higher until 2014 and 2015, due to the slow economic recovery.
The recent 88,000 jobs created in March was weak, so it will be interesting to see what happens with the April non-farm payrolls reading due next Friday.
Retail sales have also been … Read More
One of the most closely watched parts of the global financial system is the Chinese economy. I don’t need to tell you that the economic recovery in America and the rest of the world is quite sluggish. Many had hoped that China could help propel the global economy higher; however, there are now concerns that this might not occur.
Recent data on the Chinese economy are signs that economic growth is not accelerating. For the first three months of 2013, the Chinese economy posted growth of 7.7%, a lower rate than the fourth quarter of 2012, in which the Chinese economy grew at 7.9%. (Source: Yao, K., et al., “China growth risks in focus as first quarter data falls short,” Reuters, April 15, 2013, accessed April 16, 2013.)
The Chinese economy is a huge player within the international financial system. If the nation was to regain its economic growth rate of the past, this would have a substantial impact on many people and companies around the world.
The Chinese economy posted industrial production growth of 8.9% year-over-year, below expectations of 10% growth. Power generation was up only 2.1% year-over-year in March, and steel output declined 3.2%, both below expectations.
Don’t forget, China is a huge buyer of many raw materials, including copper and iron ore. This latest data is additional evidence that economic growth is not accelerating, and investors need to reallocate their portfolios in accordance with this information.
One slight positive note was that retail sales within the Chinese economy increased 12.6% year-over-year in March, above expectations of 12.5% and higher than the recorded 12.3% increase for February.
The … Read More
With the market hitting all-time highs, many investors are wondering how investor sentiment can be so positive when job creation is still not as strong as it should be. This divergence between the financial markets and the real economy cannot last forever.
Investor sentiment has been propped up by the Federal Reserve, which is trying to prime and ignite the U.S. economy. While job creation is certainly better now than it was a few years ago, there is still much more work that needs to be accomplished.
One very visible sign that the economy is not running at 100% capacity was the recently released retail sales data. For March, retail sales decreased by 0.4%, although this did follow a very strong February that showed a one-percent gain. A survey of 85 economists by Bloomberg had a median forecast of zero (unchanged) from March. (Source: Kowalski, A., “Retail Sales in U.S. Declined by Most in Nine Months,” Bloomberg, April 12, 2013.)
Job creation obviously plays a very important role when it comes to retail sales. And remember that like most developed nations, a vast majority of the U.S. economy is based on consumer spending.
In this case, investor sentiment might have become too bullish on retail-oriented stocks. If job creation does not accelerate, we could see a further impact on discretionary spending, which would break down investor sentiment throughout this year.
However, this recent retail sales data might have been a blip, as the trend is still fairly strong. Remember that one data point does not make a trend. Following stronger-than-expected data earlier in the year, a pullback was expected due … Read More
When interest rates are as low as they are and consumers begin to hold back on their spending, you have to wonder about the prospects for the retail sector going forward.
With the higher taxes on those earning over $400,000 and other tax increases as a result of the sequestration, we may be seeing some evidence of reduced spending.
The U.S. Department of Commerce said retail sales in March contracted by 0.4% on both a headline and an ex-auto basis, which was below the Briefing.com estimates of flat sales and 0.3%, respectively. This was the second decline in retail sales in the last three months.
While it may be premature to assume a new downtrend for retail sales, I wonder if the decline in take-home pay for some Americans has resulted in less consumer spending.
Or, it may be the softness of the jobs market that is making consumers nervous. With only 88,000 new jobs created in March, the jobs numbers must have had some impact on consumers and the retail sector.
Even consumer sentiment appears to be fading a bit as evidenced by the Thomson Reuters/University of Michigan Consumer Sentiment Index reading of 72.3 in April. This reading represented the worst reading since July 2012, and it’s well below the 76.0 estimate by Briefing.com and the 78.6 reading in February.
According to my estimate, the retail sector continues to be full of opportunities, but you also need to be careful on what retail stocks you buy.
You would have been sideswiped if you bought J. C. Penney Company, Inc. (NYSE/JCP), as the company posted horrible results and subsequently fired … Read More