Rising Wages, Tighter Inventory Spark Retail Holiday Optimism With just two weeks until Black Friday, executives at the nation’s biggest department stores said they are seeing signs that consumers are turning their attention from voting to shopping.
(…) Macy’s Inc. and Kohl’s Corp. cited improving sales trends and gave upbeat outlooks for the key holiday season, despite posting another quarter of declining sales as the chains struggle with changing shopping habits and competition from discounters.
Nordstrom Inc., meanwhile, reported a sales increase and lifted its financial targets for the year.
“We have momentum coming out of October,” Kohl’s Chief Executive Kevin Mansell said. “We feel we’re very well positioned for the upcoming holiday season.” (…)
Perhaps even more important than the impact of the election on retail sales is the unseasonably warm weather across much of the country.
Inventory levels are in good shape compared with a year ago but that could change if cold weather doesn’t materialize, leading to “another over-inventoried, heavily-promotional holiday season,” Citi analyst Kate McShane wrote in a note to clients. (…)
Macy’s, Kohl’s and Saks Fifth Avenue, which is owned by Hudson’s Bay Co., on Thursday all reported lower sales at existing stores for the latest quarter. However, the chains reduced inventories, putting the companies on stronger footing heading into the holidays than last year.
Nordstrom executives said lower inventory levels at their stores, and throughout the industry, are resulting in fewer discounts and more stable margins. Several of the department stores had to resort to heavy discounting to clear unsold goods that piled up during the 2015 holiday season. (…)
Overall, Macy’s reported a third-quarter profit of $17 million, down from $118 million a year earlier, hurt by restructuring costs. Sales fell 4.2% to $5.63 billion.
Kohl’s profit rose 22% to $146 million, while revenue fell 2.3% to $4.33 billion.
J.C. Penney’s quarterly comparable sales fall 0.8 percent J.C. Penney Co Inc reported a 0.8 percent fall in quarterly comparable store sales on Friday, reflecting weak store traffic, increased price competition from online and off-price retailers and a general shift away from spending on apparel.
From Merrill Lynch via CalculatedRisk:
Consumer spending accelerated in October, according to internal aggregated BAC credit and debit card data. Using the BAC card data, retail sales ex-autos climbed by 0.8% mom seasonally adjusted in October. This follows the 0.5% mom gain in September, leaving an improving trend. … This is indicative of a solid pace of consumer spending. Indeed … the consumer has strong support from wealth gains and income creation, but has restrained spending somewhat, given the propensity for greater savings and deleveraging.
Moody’s: US Election Outcome: Trump’s Victory to Shift Ground on Trade, Financial Regulation, Healthcare
(…) Yet as bond markets have been recognising over the past 48 hours, by prioritising tax cuts and an infrastructure package for the first 100 days of the Trump administration, his team appears to be envisaging a stimulus programme that comes at a time when the US is already close to full employment. That could mean not only higher growth, but quicker inflation. (…)
“From a Fed perspective if fiscal policy is coming back the corollary to that is monetary policy will have to do less easing.” (…)
While Republicans have tended to brand themselves as the party of fiscal conservatism, their new president may lead them down the path of stimulus. (…)
The Dodd-Frank Act (DFA) has featured as a target in President-elect Donald Trump’s campaign statements, but most aspects of DFA have been implemented, and it is unclear whether a wholesale repeal could pass or what a partial repeal may encompass. (…)
Notably, there has been little specific discussion of peeling back the Volcker Rule or Resolution Authority, some of the more costly aspects of the DFA. Fitch notes that the reduction in proprietary trading activity linked to Volcker has been largely positive for banks, while the resolution process has been largely positive for banks’ governance.
Anti-Wall Street sentiment has been a recurring theme in the presidential campaign for both candidates, so it remains an open question as to the likelihood or urgency of any proposed financial sector regulatory reform or repeal. (…)
It is also important to note that capital and liquidity requirements have not historically been dictated by the Legislature but through banking regulators in the US. The US has adopted Basel III and those requirements will continue to be implemented, regardless of the administration. Therefore, while aspects of the DFA may be peeled back, core banking regulation is unlikely to change. (…)
Trump Reveals Policy Goals: “Building That Wall”, End “War On Coal”, Repeal Obamacare, Dismantle Dodd-Frank
On his transition website GreatAgain.gov, the Trump team has laid out the framework of his initial policies with policies focused i) on American Security, ii) Getting America Back to Work Again and iii) Government for the people including Healthcare Reform (Obamacare).
(…) The fiscal impact of the Trump plan would be negative for US sovereign creditworthiness over the medium term, as tax cuts alone cannot generate enough growth to make up for the loss in revenue. (…)
Government debt/GDP would rise dramatically were the tax cuts to be implemented in full. The net loss of revenue stemming from the planned cuts to individual and corporate income tax rates has been estimated by the Urban-Brookings Tax Policy Center at USD6.2trn (a third of 2016 GDP) over a 10-year horizon compared with the current baseline scenario published by the Congressional Budget Office, which already forecasts federal debt/GDP to rise by 9pp of GDP by 2025. A rapid move into substantial fiscal deficit by the US could push up borrowing costs.
(…) Here are highlights of proposals in play:
Income-tax rates: Both Messrs. Trump’s and Ryan’s plans would consolidate the current rates on “ordinary” income such as wages and interest from seven brackets to just three—12%, 25% and 33%. It would also make changes to the calculation of “taxable income.”
The top rate of 33% would take effect at about $225,000 of taxable income for married couples; currently the top rate of 39.6% kicks in at $467,000 for couples. The top rate for singles under Mr. Trump’s plan would take effect at about $113,000, compared with $415,000 now, according to the Tax Policy Center in Washington.
In 2016 the 33% rate takes effect at about $231,000 of taxable income for married couples and $190,000 for singles.
The upshot is that while most people would have lower tax bills, higher earners would save much more. According to the Tax Policy Center, nearly half the benefits from the Trump plan would go to the top 1% of households—those earning more than about $700,000. It could also increase taxes on many single parents and two-parent families with more than two children, although the Trump campaign said it would make sure this didn’t happen. (…)
Capital gains and qualified dividends: Mr. Trump’s plan would leave the current rate structure of 0%, 15% and 20% in place.
Mr. Ryan’s plan would revert to an older code provision that taxes capital gains, dividends and interest as ordinary income—after excluding 50% of it. Thus lower earners would see their rate rise from 0% to 6%, those in the middle would owe 12.5%, and the rate for top earners would fall to 16.5% from top 20%. (…)
Estate and gift taxes: Mr. Ryan’s plan would eliminate all gift and estate taxes. Mr. Trump’s plan would also eliminate these levies, but it would impose income taxes on the capital gains of assets held at death—beyond an exemption of about $5 million per person or $10 million per couple.
Revenue effects: These sweeping changes don’t come cheap. The changes to individuals’ taxes in Mr. Trump’s plan would reduce federal revenue by an estimated $3.5 trillion over 10 years, while Mr. Ryan’s plan reduced it by an estimated $2.2 trillion. (…)
The 30yr Treasury yield has gone vertical as investors expect fiscal stimulus and higher inflation from the Trump administration.
US market-based inflation expectations continue to rise.
The Organization of the Petroleum Exporting Countries pumped 33.64 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, up 240,000 bpd from September, OPEC said in a monthly report. (…)
According to OPEC’s report, October’s supply boost mostly came from Libya, Nigeria and Iraq – members that have sought to be exempt from cuts due to conflict. Iran, seeking an exemption as output was held back by Western sanctions, also pumped more. (…)
With demand for OPEC crude in 2017 expected to average 32.69 million bpd, the report indicates there will now be an average surplus of 950,000 bpd if OPEC keeps output steady. Last month’s report pointed to an 800,000 bpd surplus.
The 2017 surplus implied by the IEA in its latest report on Thursday is closer to 500,000 bpd.
The Trump era (The Economist)
(…) Start with the observation that America has voted not for a change of party so much as a change of regime. Mr Trump was carried to office on a tide of popular rage (see article). This is powered partly by the fact that ordinary Americans have not shared in their country’s prosperity. In real terms median male earnings are still lower than they were in the 1970s. In the past 50 years, barring the expansion of the 1990s, middle-ranking households have taken longer to claw back lost income with each recession. Social mobility is too low to hold out the promise of something better. The resulting loss of self-respect is not neutralised by a few quarters of rising wages.
Anger has sown hatred in America. Feeling themselves victims of an unfair economic system, ordinary Americans blame the elites in Washington for being too spineless and too stupid to stand up to foreigners and big business; or, worse, they believe that the elites themselves are part of the conspiracy. They repudiate the media—including this newspaper—for being patronising, partisan and as out of touch and elitist as the politicians. Many working-class white voters feel threatened by economic and demographic decline. Some of them think racial minorities are bought off by the Democratic machine. Rural Americans detest the socially liberal values that urban compatriots foist upon them by supposedly manipulating the machinery in Washington (see article). Republicans have behaved as if working with Democrats is treachery.
Mr Trump harnessed this popular anger brilliantly. (…) For some [voters], his flaws are insignificant next to the One Big Truth: that America needs fixing. For others the willingness to break taboos was proof that he is an outsider. As commentators have put it, his voters took Mr Trump seriously but not literally, even as his critics took him literally but not seriously. The hapless Hillary Clinton might have won the popular vote, but she stood for everything angry voters despise.
The hope is that this election will prove cathartic. Perhaps, in office, Mr Trump will be pragmatic and magnanimous—as he was in his acceptance speech. Perhaps he will be King Donald, a figurehead and tweeter-in-chief who presides over an executive vice-president and a cabinet of competent, reasonable people. When he decides against building a wall against Mexico after all or concludes that a trade war with China is not a wise idea, his voters may not mind too much—because they only expected him to make them feel proud and to put conservative justices in the Supreme Court. Indeed, you can just about imagine a future in which extra infrastructure spending, combined with deregulation, tax cuts, a stronger dollar and the repatriation of corporate profits, boosts the American economy for long enough to pacify the anger. This more emollient Trump might even model himself on Ronald Reagan, a conservative hero who was mocked and underestimated, too.
Nothing would make us happier than to see Mr Trump succeed in this way. But whereas Reagan was an optimist, Mr Trump rails against the loss of an imagined past. We are deeply sceptical that he will make a good president—because of his policies, his temperament and the demands of political office.
Take his policies first. After the sugar rush, populist policies eventually collapse under their own contradictions. Mr Trump has pledged to scrap the hated Obamacare. But that threatens to deprive over 20m hard-up Americans of health insurance. His tax cuts would chiefly benefit the rich and they would be financed by deficits that would increase debt-to-GDP by 25 percentage points by 2026. Even if he does not actually deport illegal immigrants, he will foment the divisive politics of race. Mr Trump has demanded trade concessions from China, Mexico and Canada on threat of tariffs and the scrapping of the North American Free Trade Agreement. His protectionism would further impoverish poor Americans, who gain more as consumers from cheap imports than they would as producers from suppressed competition. If he caused a trade war, the fragile global economy could tip into a recession. With interest rates near zero, policymakers would struggle to respond. (…)
The second reason to be wary is temperament. During the campaign Mr Trump was narcissistic, thin-skinned and ill-disciplined. Yet the job of the most powerful man in the world constantly entails daily humiliations at home and abroad. (…) If Mr Trump fails to master his resentments, his presidency will soon become bogged down in a morass of petty conflicts.
The third reason to be wary is the demands of office. No problem comes to the president unless it is fiendishly complicated. Yet Mr Trump has shown no evidence that he has the mastery of detail or sustained concentration that the Oval Office demands. He could delegate (as Reagan famously did), but his campaign team depended to an unusual degree on his family and on political misfits. He has thrived on the idea that his experience in business will make him a master negotiator in politics. Yet if a deal falls apart there is always another skyscraper to buy or another golf course to build; by contrast, a failure to agree with Vladimir Putin about Russia’s actions leaves nobody to turn to. Nowhere will judgment and experience be more exposed than over the control of America’s nuclear arsenal—which, in a crisis, falls to him and him alone.
(…) The danger with popular anger, though, is that disillusion with Mr Trump will only add to the discontent that put him there in the first place. If so, his failure would pave the way for someone even more bent on breaking the system.
The election of Mr Trump is a rebuff to all liberals, including this newspaper. The open markets and classically liberal democracy that we defend, and which had seemed to be affirmed in 1989, have been rejected by the electorate first in Britain and now in America. France, Italy and other European countries may well follow. It is clear that popular support for the Western order depended more on rapid growth and the galvanising effect of the Soviet threat than on intellectual conviction. Recently Western democracies have done too little to spread the benefits of prosperity. Politicians and pundits took the acquiescence of the disillusioned for granted. As Mr Trump prepares to enter the White House, the long, hard job of winning the argument for liberal internationalism begins anew.
OBITUARY Leonard Cohen (1934-2016) Leonard Cohen, the gravelly voiced Canadian singer-songwriter of “Hallelujah,” ‘‘Suzanne” and “Bird on a Wire,” has died at age 82.