Holiday sales estimates are already being trimmed, with the current year set to be the weakest since the Great Recession. Of course, it matters whether or not you have access to asset inflation, as retailers for the more affluent are expecting better results. Reuters spells it out succinctly,
“As result, low-income Americans will again have a less-merry season than affluent consumers, who are more flush thanks in part to surging stock markets.”
The worry over the majority of holiday sales in the “wrong” part of the FOMC-bifurcated economy shows that redistribution plans are not trickling down to where they were intended. However, various retailers and producers were not expecting this, so inventory has been accumulating.
In turn, other retailers will have to follow as competition (good for consumers, bad for producers that used FOMC forecasts to predict end demand) for limited discretionary dollars is pressuring retailers. ShopperTrak only expects 2.4% growth for the entire holiday season, while estimates for Black Friday and Cyber Monday are even weaker.
Some of these worst expectations were confirmed by the retail sales figures released today. In nearly every segment, sales growth in October (and 2013) is the worst since 2009.
Excluding auto sales, disavowing Chairman Bernanke’s hollow revisionism, retail sales growth in October was a mere 2.9%. That growth rate is about half of October 2012, and quite a bit below the 2007-08 averages. This more than suggests that there is little demand for goods in the US economy, a fact that is shared by everything from trade figures to inflation estimates (more on that below).
For general merchandise stores, including WalMart, shopping activity was particularly bad in October. Year-over-year growth was a small 1.4%, coming after a slight decline in September. These retail sales figures confirm the rather dire WalMart comparable store estimates.
Even combining online shopping (nonstore retailing) with general merchandise shows an unmistakable weakness in consumer spending.
The confluence of weak demand and over-optimistic suppliers is, again, the propensity to have to discount goods. Back to Reuters:
“The deep discounts will crimp retailers’ bottom line. Macy’s Inc., which has added doorbusters and deals of the day, warned that profitability will come under pressure in the fourth quarter…Best Buy Co., the world’s largest consumer-electronics retailer, today alerted investors to margin erosion in the holiday quarter as well, because “additional holiday pressures” have prompted it to ratchet up its price competitiveness…This year will be the worst and most promotional shopping season for specialty apparel and department-store chains since 2008, Morgan Stanley retail analysts predicted in an Oct. 31 report, blaming low consumer confidence…Wal-Mart, which has projected stagnant U.S. comparable sales for the rest of the year and vowed to be aggressive with its promotions, fired its first salvo Nov. 1 with its earliest-ever holiday deals.”
Confirming this interpretation is the latest inflation figures from the BLS, with the CPI-U coming in at the lowest level since 2009 (there’s that comparison again). The charts above showing retail sales growth look suspiciously similar to the CPI-U shown below.
We can reasonably conclude that there is little demand in the US economy and it appears that retailers fell for the QE-story earlier in the year when projecting into the Christmas season. That would fit into the narrative that the summer renaissance was largely an inventory illusion. Unfortunately, that will mean another destructive cycle very much like earlier this year, set to begin from an even lower/weaker position than 2012.
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