Wednesday, July 15, 2009

More on Retailing

From David Rosenberg's AM comments today (Breakfast with Dave, Gluskin Sheff):

As for July, we are hearing that auto sales are soft and we see from the Redbook survey that chain store sales are down 5.7% YoY so far in July and -1.7% versus the June average — coming in well below plan. Moreover, here is what the Redbook had to say about the retail landscape so far this month:

“Department stores reported that customers were not responding to fashion and seasonal initiatives, most evidently in the key merchandise category of women’s ready-to-wear. The focus in July, as in the latter part of June, is on clearing seasonal stock. Sales performance was driven by discounting”. Maybe we’re missing something, but we fail to see from this assessment of the 70% chunk of GDP called the consumer would warrant an overweighting in equities over fixed-income in the asset mix. Oh yes, bond yields are low, but for a very good reason (maybe because nominal GDP growth is negative).

We should add here that the IBD/TIPP Economic Optimism Index, which was one of the early “green shoots” to surface back in the winter, dropped to 46.1 in July from 50.8 in June and augurs for a poor back-to-school retail sales season. We highlighted this yesterday — early surveys suggest that we could see a record 4-8% YoY decline this year.

DoctoRx here. Repeating Redbook: "Sales performance was driven by discounting." And per the first paragraph above, July sales are miserable and worse than June. So much for the BLS claiming that apparel prices have been rising. BLS is wrong: weighted for actual sales mix, they have been falling, and probably falling hard.

This comports with what my contacts in the business community are saying, which is that business turned down in the past 6 weeks.

This is not to say that things won't turn up again, but one wonders about the quality of an upturn if it is due to Government transfer payments or one-offs such as repaving roadway (which may or may not have needed repaving).

Maybe it's time for Americans to turn more European, meaning work less hard. At the least, it would be good if the Government and the financial players were not so aggressive about the abstraction known as the "economy". Just maybe the country would net be better off with more rest and leisure time, less debt, smaller homes, less gasoline burned, and less food consumed. For sure, Mother Earth would appreciate it!

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