“A lot of the euphoria around the holiday shopping season was misplaced. The weakness in December implies that the handoff into the first quarter was weak. The savings rate is going higher and that’s going to be a headwind for consumer spending.”

-Neil Dutta, Bank of America economist, who was one of the few who correctly forecast sales data (Bloomberg).


For the past few months, I have been debating a few folks about my concerns 0ver Retail Sales. Based on the early data, anecdotal evidence of aggressive discounting, and the ongoing delveraging of US consumers, it looked like expectations were too high.

The actual sales failed to live up to the hype.

My initial pushback was due to the widely touted shopper survey from the National Federation of Retailers, whose annual idiocy manages to fool journalists and mislead the public each year.

But the bigger issue is the broader environment — I need not remind readers that this is not a robust cyclical recovery, but rather, a limping, post-credit crisis healing process. Expectations of a riproaring public shopping spree were simply wishful thinking. And now, the data officially confirms this.

For the month of December, sales rose a pitiful 0.1%. Back out autos, and they fell 0.2%. This is the third consecutive month of decelerating growth, according to data from the Commerce Department. Food, gasoline and clothing all suffered from rising input costs — the gains you see in those sectors are primarily inflation. Even internet sales, a secular shift in spending habits, rose only 10% in December. They had been previously rising at a 15% rate.

The one true bright spot was Autos — following the freeze during the crisis, we now have a much older average aged fleet of US autos, and they are overdue for replacements.

What is going to be even more disappointing are margins and profits. To achieve the even mediocre sales data, retailers slashed prices, cut into margins, and offered steep discounts to lure consumers. They will see this reflected in their earnings. Aside from a few specialty sellers — think Apple and Lulu Lemon — we will see quite a few disappointments in the sector when the Retail Sales companies report their Q4 earnings next week. Watch for changes in guidance for the first half of 2012.

Those of you who may have downplayed the potential for a recession to start over the next 12-18 months way want to revisit your views on this. It is far from the low possibility many economists have it pegged at.

click for larger graphic

graphic courtesy of WSJ

No, Black Friday Sales Were Not Up 16% — not even 6%
(November 28th, 2011)

Beware the retail hype (December 10th, 2011)

Sluggish Sales Stir Concerns About Growth
WSJ, January 12, 2012

Category: Consumer Spending, Really, really bad calls, Retail

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “Mediocre December Retail & the Slowing Economy”

  1. theexpertisin says:

    Good call, BR. Time to strike a Tebow.

    One important item you mention is the way media is manipulated by hyped surveys. These are often nothing more than self-serving morsels that use deliberately contaminated samples to arrive at a result that is satisfying to the survey originators – or their paid sponsors. Making hard news out of so many bad surveys makes me think the media is too lazy as a species to objectively gather facts themselves. They outsource their jobs.

    Figures don’t lie, but you can lie with figures.

  2. Jim67545 says:

    On autos, the aging of the fleet might have as much to do with the longer lifespan of cars due to improved overall quality, especially in the less expensive vehicles, lower miles driven and tighter credit and widespread damaged credit than people just laying back due to economic uncertainty.

  3. Concerned Neighbour says:

    Economists are convinced there won’t be an economic recession or an earnings recession because they think the Fed will print ad infinitum to try and prevent it. And really, you can’t blame them for thinking so; there is no evidence to the contrary. This is the most reckless, gluttonous Fed in history.

    The real question is can further QE prevent another recession? I personally don’t think so with commodity prices already being so high. Unless they miraculously find a way to transmit the printed money to the end consumer, rather than have the banks funnel it into assets like food staples and the stock market.

  4. Petey Wheatstraw says:

    Concerned Neighbour:

    If only stabilizing the economy was on the Fed’s agenda. It’s not. At least not until the transfer of wealth to the crony capitalists and the de facto destruction of our Constitutional republic are complete (at which point the new status quo will be set in stone).

    Printing and distributing money DIRECTLY to the indebted is the ONLY way out of this. It’s doable (after all, they have no problem doing it for their friends), and would cure the debt overhang, systemically (that is, not recapitalizing the banks and leaving J6PK to struggle with unserviceable debt).

    I’m glad the American consumer didn’t go nuts over the Yacksmas tradition of taking on new debt as a way of proving you love the baby Jesus.

  5. AHodge says:

    YOU were one of the few and deserve a victory lap

  6. pintelho says:

    Kudos BR for getting it right… Though anyone who thought we would instantly slosh out double digits for xmas 2011 needed a head check period.

    It would be even better if they showed the YOY numbers on a similar easy to digest infograph.

  7. tcolemanuf says:

    Barry, umm, I concur with “theexpertisin.” These are hyped surveys to get the herds of consumers moving to the stores. It’s nothing more than a marketing ploy that will be used this year, last year and every year henceforth. My guess is there is no correlation between the surveys and actual results. Some years they will be correct when consumer spending does surge and other years when spending is flat or falling they will be incorrect. So I’ll give it to you the first time i read your prediction in 2007, but ever since then it’s been shooting fish in a barrel for you.

    my question to you then is can you improve the process? Is there a better way to in real time predict what the sales will be over the holiday season, something that participants in the financial markets can point to that would trump these media manipulated herding mechanisms. As a corollary is it even worth it to create something that will? I.E. is there some actionable trade that can be discerned by this new and improved sales predictor.

    Keep up the good work, I find more good reads on your site than I do on most of the internets and I appreciate all the hard work and effort that goes into it.

  8. XRayD says:

    So when will CNBC bringing out their parade of forecasters it had been trotting out since mid-November … and ask them to explain why most of them were were mostly wrong?

    Oh, I forget .. at CNBC its always time to move on to the next hype! So never mind.

  9. notakid says:

    fleet age is going up as peeps can’t afford to buy new and many and more everyday can’t afford to keep the old vehicles they have in good running order.

    You gents at the top need to step it up as you have a growing bottom 50-60% that will never buy new again.

  10. notakid says:

    I know several used car hustlers and they have plenty of inventory, it’s the buyers they are missing.

  11. Futuredome says:

    Wrong. December was better than the previous 3 decembers before it. There is no slowing economy at this point in time. Posts like this ruin Big Picture.

    Get over 2003-6. It isn’t coming back.


    BR: Sold to you

    Almost every year is better than the prior year — until we adjust for population growth and inflation dollars.

    If you think this was a good holiday season, go buy a basket of retailers!

  12. The TRI has consistently been alerting of Spring 2012 GDP weakness since late October, but virtually all updates have been upward revisions. Presently, a o.8% April trough is forecast. The body of evidence is against any imminent monthly contractions let alone a 2012 Recession.


  13. jadogsl says:

    To believe the bullish case you have to disagree wiith the top
    Hedge fund manager Dalio
    Bond fund manager. Gundlach
    Macro shop. ECRI

  14. Pantmaker says:

    Barry I think you are one of three serious economic thinkers out there that dare to utter the R word at this juncture. It’s coming. I say Q1. This is really going to blind side some folks…and being blind sided by anything is never good for the markets. Impressed as always.