U.S. Shoppers Show Restraint Despite Savings at the Pump U.S. retail sales slumped in January for a second straight month, a sign that sluggish consumer spending over the holidays continued into early 2015 despite the savings from sharply lower gasoline prices.
Sales at U.S. retailers slumped a seasonally adjusted 0.8% in January on top of a 0.9% decline in December, depressed by a plunge in gas prices, the Commerce Department said Thursday. Even excluding gas, retail spending was flat last month after ticking down 0.2% in December.
Don’t despair. The consumer is actually spending more than the headlines suggest:
“Control Sales”, which exclude Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places and which directly enter into GDP calculations, are performing better as this Doug Short chart shows:
This table from Moody’s gives the YoY change in 3-month sales to January by major retail segments. Total sales were up only 3.6% but ex-gas stations they were up 5.5%. Autos and housing related retailers are doing well. So are drug stores and restaurants.
The relative weakness is in general merchandise and apparel. BloombergBriefs provides one explanation:
Several lower price trends can be inferred from the December and January retail sales reports. The data are reported in nominal terms, so there is little direct information on how much of a monthly move was due to prices rather than volumes. In some categories, though, we already knew prices have been falling, most obviously, gasoline.
The other categories experiencing declines were probably all related to post-holiday discounting in order to purge inventories and make room for spring merchandise. Sales at sporting goods, hobby, book and music stores fell 2.6 percent in January, while clothing and accessory sales fell 0.8 percent. Department store sales fell 0.7 percent. These large groups are all ridding themselves of winter goods.
Deflation is rampant around the world and the U.S. imports tons of “general merchandise” and apparel recently paying with a much stronger currency for these goods. The official stats always lag the real world by 1-3 months but retailers are in real time. Here’s what they are experiencing lately:
A stronger buck does not only impact exporters. As the dollar appreciates and consumers shift toward cheaper imported goods, domestic producers also have to lower their prices to remain competitive. As a result, even highly U.S.-focused companies are experiencing what deflation really is.
BTW, if you have any meaningful investments in brick and mortar retailing, think retail REITs for example, you should take a good look at this chart:
If you think the one-percenters are not suffering, think again: Rolls-Royce Profit Falls 8% on First Sales Drop in Decade
Economists Trim Forecasts of Fed Rate Rises
The WSJ’s February survey showed a decline in the average forecast for the benchmark federal funds rate in December of this year to 0.82%, down from the 0.89% they projected in last month’s survey, implying the central bank will begin rate increases at some point in 2015–but move less aggressively. The trend holds longer term as well. They now see the federal funds rate at 1.50% in June of 2016, down from 1.63% in the January poll; and 2.20% in December 2016 versus a previous estimate of 2.31%. (…)
The decline in rate expectations is in line with near-term inflation forecasts that were also pared back. Economists now see annual inflation at just 0.2% in June, down from estimates of 0.5% rate in the January survey, and closing out the year at 1.4%, compared to earlier projections of 1.6%.
Eurozone GDP Picks Up, Thanks to Germany A strong pickup in Germany led an acceleration in eurozone economic growth in the final three months of 2014, but large parts of the currency area were either close to stagnation or still contracting
The European Union’s statistics agency said Friday the combined gross domestic product of the 18 countries that then shared the euro was 0.3% higher in the fourth quarter than in the third. That was a stronger outcome than the 0.2% rate forecast by economists who were surveyed by The Wall Street Journal last week, which would have left growth unchanged from the three months to September.
On an annualized basis, the economy grew by 1.4%, a much weaker performance than the 2.6% rate of growth recorded by the U.S. during the same period.
Gross domestic product in Germany was 0.7% higher in the fourth quarter than the third. That marked a significant pickup from the 0.1% expansion recorded by Germany in the three months to September.
But economic growth slowed in France (+0.1%), while Italy endured its 14th straight quarter without an increase in output. Elsewhere, Greece’s economy contracted –0.2% after three quarters of expansion.
GREXIT
In the WSJ:
Greece, EU Strike Friendlier Tone Leaders from Greece and the rest of the eurozone struck a conciliatory tone a day after hopes of a quick resolution to the standoff between Athens and its creditors were dashed.
In the FT:
Merkel keeps up the heat on Greece Chancellor continues to block Tsipras plan for new bailout deal
CONVERGENCE
Fully 90% of the industrialized world’s bond markets now have a sub-2% yield on 10-year sovereign debt and 90% have policy rates anchored to zero or lower. (David Rosenberg)
Hmmm…
EARNINGS WATCH
Earnings just keep getting better. As of last night, 386 companies (85.2% of the S&P 500’s market cap) have reported. So far, EPS ex-Energy are seen up 9.5%. Total S&P 500 EPS are seen up 6.5% excluding the likelihood of continued beats. So far, they are beating by 4.6%. Strength appears broad based with 71% of those reported surprising to the upside on EPS. Revenues ex-energy are seen up 4.2%. (RBC)