Friday, December 11, 2009

Retail sales are strong -- another V-sign

Here's yet another V-sign (and a very graphic one at that): the impressive strength in retail sales over the past six months. This, despite 10% unemployment and a significant amount of "resource slack" in the economy. What it means is that there are still an awful lot of people working; they have been working harder and more productively, and their incomes have been rising faster than inflation. In addition, their confidence in the future has risen, so some of what they are spending is money they had hoarded last year when the future looked disastrous.


Bill said...

Do you a think a stronger dollar will weaken exports and hence GDP growth?

Tom Burger said...

From Mish Shedlock's blog we have this:

Inquiring minds are reading the Wall Street Journal article Stores' Dilemma:

To Deploy Discounts Now or Hold the Line.
Who will blink first: retailers or shoppers? Chain-stores are holding bigger markdowns in reserve trying to gauge how long shoppers will wait for better deals to emerge.

The standoff, which experts say could be decided in favor of shoppers as soon as this weekend, could help determine whether or not this holiday season marks the second year in a row of sales declines.

Nine of 10 people waiting to finish their holiday shopping are doing so to get discounts of at least 50%, according to a survey released Thursday by UBS and market researcher America's Research Group Ltd. A third of respondents said they are holding out for a 70% discount.

"If we don't have to do it, believe me, we're not going to do it," said Kay Krill, chief executive of women's clothing chain AnnTaylor Stores Corp. Its Ann Taylor and its Loft outlets have discount banners "ready to go" should consumers need an incentive to shop, she said.

The first week of December, typically a lackluster time in the wake of Black Friday, was particularly slow. Sales for the week ended Dec. 5 fell 18% from the prior-week period, which included Black Friday, according to market researcher ShopperTrak RCT Corp. Last year, when the recession was in full force, sales fell a lesser 14%, according to the firm, which compiles shopping traffic at malls and uses sales statistics, as well as Commerce Department figures, for its estimate.

"After solid traffic the first couple of days, it looks like the middle of August out there," said Stephen Baker, vice president of industry analysis for retail watcher NPD Group.

Scott Grannis said...

Bill: The connection between the strength or weakness of a major currency like the dollar and export growth is largely a myth. A 10-20% appreciation of the dollar would have little if any impact on our exports. In any event, a stronger dollar would far outweigh in positive terms (increased investment, lower inflation, greater confidence) than any negative impact it might have.

bob wright said...

Has anyone read or heard what percentage of consumer spending the top 20% of income earners are responsible for?

I seem to recall hearing in a
t.v. interview an economist say that, similar to Pareto's law, the top 20% of income earners are responsible for 80% of the spending.

My next question would be, what has happened to the disposable income of this group?

Scott Grannis said...

I'm not sure there is data to answer your question, but I doubt it's an 80/20 thing.

Cabodog said...

Awoke this morning to this tweet from Rasmussen: Obama: Strongly Approve 23% Strongly Disapprove 42%.. Approval Index:-19, lowest yet...

In other words, a nice Sunday morning.

Rick said...

Hi Scott, are retail sales expressed in real dollars (not current dollars) higher than they were in Q208 or Q308? All your graph proves is that the six month annualized movement in retail sales is now moving up off of a lower base. Why is that a predictor of recovery any more than the same average was a predictor of continued growth in early 2008?

Also, how does an economist define recovery? Is it merely that data is increasing again? Or does recovery not occur until BEA reports a real GDP number equal to or greater than the Q208 number?

Scott Grannis said...

Rick: Real retail sales have not yet exceeded the levels of Q2 or Q3 '08, but that does not rule out the existence of a recovery. From a business cycle perspective, recovery starts once economic activity has bottomed. Increasingly it looks like a recovery started last July. For the layman, a recovery probably won't arrive until economic activity reaches a new high.

Rick said...

Scott, thanks for your reply. I agree that economic conditions have leveled off. Consumers and businesses are attempting to discover the spending and production levels at which they can exist without risk.

From an anecdotal perspective re: retail sales, I would point out that the Wal-Mart stores in my section of FL are laying off employees. My local Wal-Mart just laid off 15 cashiers last Friday. That surprised me since these layoffs occurred two weeks before Christmas.