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Thursday, July 12, 2007

Slumpy Retail And Slowly Rising Unemployment

The great debate over construction jobs continues, but is slowly being made irrelevant by signs of diffusion such as retail job losses. Continuing claims are moving higher too. More layoffs in transportation, services, etc.

Store chain sales figures are coming in. Industry analysts seem to have stopped blaming everything on cold weather (possibly influenced by the Live Earth concerts), and now strike a sobering note:
Retail sales for the past five months have averaged a gain of about 2.1 percent, compared with 3.9 percent a year earlier, Michael Niemira, chief economist at the ICSC, said July 10. Same-store sales are an industry benchmark because they exclude results from new or closed locations.
...
``Retailers became even more aggressive at discounting their products,'' Eric Beder, an analyst at Brean Murray Carret & Co. in New York, said July 10. Retailers ``are just trying to minimize their losses.''
Costco and Sam's Club continue to be the big low-end gainers. WalMart reported sames store sales up 2.4%, which sounds good until you realize that the supercenters were only up 1.6% while Sams Club was up 6.9%, and that the big gain in sales for the supercenters was in stuff like groceries with relatively low profit margins and that higher profit margin items like apparel were "weak". Costco rose 6%.

The mall crew (Sears, JC Penneys, Macy's) continued slow sales. By "slow", we mean declining nominal sales. Now is the time to recycle all of that NAR verbiage from last year. There is going to be a retail analyst's bull market in words such as "slow, softening, sliding, soft, and slack".

AFAIK, the real story is that consumer needs inflation is catching up with consumers, and that MEW is no longer helping to defuse the situation as much. Now it's down to the shorter term consumer debt, but that has to be paid back at higher interest rates over a shorter time span, so it is far more painful to finance your living expenses that way. Consumer credit for May. Note the 9.8% annualized increase in revolving (credit card) debt. That won't continue for long!

Real personal disposable income dropped for the last two months reported.

Oh, and oil moving above $75 is not a good sign. Worse yet:
Investors and analysts have cited speculative buying by hedge funds and pension funds as one key factor behind the latest oil rally.

"This (recent) rally is very much fund driven... The entry of long-only hedge funds into the market is a major factor this time around. We wouldn't rule out Brent hitting $80 this summer," said Graham Sharp, director and one of the funding partners at commodities trading group Trafigura.

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