Sunday, 21 November 2010
Off To The Mall: ISM hopes On Santa
The retail sales are the most important indicator for growth in the US. It leads a bit ISM orders. At the end of 2008 and at the beginning of 2009 the retail sales fell too far below trend and a recovery had to start. Then the retail sales moved too far above trend in 2010 and a correction started that was finished in the third quarter. That correction was overhyped and the New Normals told a double dip was unavoidable. The trend of the retail sales is marginally rising. For a stronger trend car sales must go up further (is improving already), the housing market should recover more convincing (H2 2011?) and employment growth must be clearly stronger (also H2 2011).
To get a strong/ stronger ISM the Christmas sales must be better than last year. Friday is Black Friday and there is the big test for retail sales. Prices are slashed eve n more than in previous years.
The front page of Barrons (see picture) had: Off To The Mall. Jacqueline Doherty wrote an optimistic story about the growth of consumption in the US. The consumer credit is back again at normal levels versus income and consumption is no longer lower because of that. She cites Paulsen of Wells Fargo (he could be a very good member of my club of optimists). The consensus sees a rise of 2.3% for the Christmas sales, but Paulsen thinks it will be 3.5-4%. And in 2011 the American economy will grow about 4%, as also Clifton from Strategas says (and he saw 2009 and 2010 excellently). Clifton says the Bush tax cuts will be extended for at least a year and because of that consumption growth will not be hit as hard as the consensus thinks.
Doherty also takes into account what the New Normals are saying: deleveraging will continue for several years, this is an unstoppable process especially because net assets are still 23% below the 2006 levels.
The New Normals had good reasons why the American consumer should change from a grasshopper to an ant, but that doesn’t seem the case. People that sent the key of their house start consuming again and buying on credit if possible.
Dohety’s article gives losts of arguments why the Christmas sales and consumption growth will be good. Saving will not go up now employment is growing again, consumer debt is back to normal levels, interest rates are so low, the amount of defaulting consumers is going down rapidly. Credit card companies send 3 times as much mails as previous year to get a credit card. Starbucks saw 5% more traffic and 8% higher spending.
That all makes it plausible that the lines for Macy’s etc will grow, but that’s unfortunately also true for food stamps. In total that is leading to more consumption, but the distribution could be a lot more just.