Majestic Research

The Wall Street Journal

Economists React: ‘Implosion’ in Consumer Spending Is Over

Published: December 09, 2009

Economists and others weigh in on the jump in retail sales.

· Consumers are feeling more confident, as shown by the improvement in consumer sentiment in early December. They are still spending cautiously, with a keen eye for bargains, but spending is growing… On a year-over-year basis, “holiday” sales will probably be up 1.0-1.5% this year (that compares November/December retail sales ex-autos and gasoline with a year ago). That would be better than the 2.2% decline last year as the economy tumbled into deep recession, but a far cry from the heady days in mid-decade when gains were consistently in the 5%-6% region. –Nigel Gault, IHS Global Insight

· Headline retail sales are making a steady comeback after collapsing towards the end of 2008, an encouraging sign to be sure. While we continue to believe consumers can continue spending during the deleveraging process, the difficulties in the labor market, the desire to reduce and the tightening of lending standards of all kinds should serve to cap the pace at which spending will rebound in 2010. –Dan Greenhaus, Miller Tabak

· A large portion of the gain in both series resulted from higher gasoline prices, which boosted the nominal value of gasoline station sales. Core retail sales (sales excluding autos, gas and building materials) rose by a healthy 0.5% [from a month earlier]… Details of the report were significantly better than results reported by large chain-store retailers for the month. –Zach Pandl, Nomura Global Economics

· Sales of electronics (+2.8%) and building materials (+1.5%) were strongest. For electronics, we think the jump in sales likely reflects retailers’ door-buster offers for the weekend after Thanksgiving; we don’t expect it to be sustained… Building materials are volatile but still trending down; the November jump did not even fully reverse the October 1.8% drop. –Ian Shepherdson, High Frequency Economics

· Only three categories registered declines: furniture stores, a category that continues to languish, apparel stores, hurt in part by warm weather, and “miscellaneous.” Every other sector posted rises, ranging from 0.3% to as much as 2.8% for electronics and appliances stores. The strength in electronics and in “nonstore retailers” (which includes internet-only outlets), up 1.2%, was consistent with the anecdotal chatter coming out of the post-Thanksgiving weekend. However, given the somber commentary from large chains, it was surprising that general merchandisers managed to post a hearty 0.8% increase in November. –Stephen Stanley, RBS

· Looking at control retail sales (sales w/o autos, gas, and building supplies) the implosion in consumer spending is finally behind us. On a year-over-year basis control spending is running about even with inflation and ahead of it for the past few months. The upturn is none too surprising with stabilizing labor markets and the equity market returning some wealth to household balance sheets. Critical question is how fast consumption rises in the coming year… Spending will rise but just not as much as we are used to. –Steven Blitz, Majestic Research

· Despite stagnant growth in incomes and a challenging labor market, U.S. households continue to respond to aggressive price cutting. Discounting by retailers at the start of the holiday season boosted sales of electronics, motor vehicles and building materials. But while reported spending was better than expected, the numbers contrast with recent Federal Reserve data that suggest households continue to deleverage. Government support for spending is scheduled to level off in 2010, and households will continue to build personal saving and cut debt-to-income ratios. Absent persistent discounting, difficulties lie ahead for both consumers and retailers.–Joseph Brusuelas, Moody’s Economy.com

· The results are in, and…well, not bad, to be honest. After the late Thanksgiving holiday had us bracing for a push of retail activity into December, the data proved these concerns wrong and are actually pointing towards a decent holiday selling season. Overall we’re heartened by today’s numbers and especially the sizeable improvement in electronics sales. –Guy LeBas, Janney Montgomery Scott

· This was a remarkably strong report, and it suggests that the positive momentum seen in U.S. consumer spending in recent months is gaining steam… Notwithstanding, with the U.S. labor market remaining weak, despite the impressive improvements in recent months, and the initial stages of the economic recovery expected to be quite modest, we expect the uptick in consumer spending to perhaps ease in the coming months. –Millan L. B. Mulraine, TD Securities

· Consumers have made a remarkable contribution to the recovery in final demand in 2009 given how bad the labor market has been. Retail sales have gained 4.6% thus far in 2009 and the momentum in consumer spending (outside of autos) is clearly upward in recent months. Given the rapid pace of inventory liquidation, output levels are unsustainably low in light of the likely increase in final demand in the fourth quarter. –RDQ Economics

· This is a strong report that may simply indicate that the sour mood consumers seem to be telling surveyors that they are in hasn’t stopped them from coming back to the malls. This economy can only get going if the demand side picks up. Businesses are not going to spend lots of money on plant, equipment or software if there is little demand to support those expenditures. Thus, tax cuts to induce greater investment is not likely to do more than subsidize those who would have invested anyway. Additional capital spending would likely be modest, at least at this time. In the future, that is likely to change and policy should change accordingly. But for now, it is all about the consumer and this report should provide some hope that households are beginning to play their part in the economic recovery. –Naroff Economic Advisors

· November’s retail sales figures suggest the all-important holiday shopping season got off to a decent start. However, consumer confidence remains unusually depressed and is consistent with only modest gains in consumption next year. This will undermine the strength and sustainability of the economic recovery. –Paul Dales, Capital Economics