The Commerce Department released retail sales yesterday. The news was not good. As reported by Bloomberg/BusinessWeek:
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“Sales at U.S. retailers unexpectedly fell in December following a bigger gain than previously estimated the prior month, highlighting the risk that the largest part of the economy will be slow to recover.
The 0.3 percent decrease came after a 1.8 percent jump the prior month, Commerce Department figures showed today in Washington. Other reports showed inventories rose more than forecast in November and jobless claims climbed last week.”
David Rosenberg, former Merrill Lynch chief economist and currently of Gluskin Sheff puts the impact this way:
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“The problem with having a weak December retail sales figure is that the consumer spending momentum heading into the current quarter is nearly zero.
…the problem with having a weaker December number is that the consumer spending momentum heading into the first quarter is pretty well non-existent (a zero build-in on the parts of the retail sales report that feeds into the consumer spending segment of GDP). Businesses will see what is happening to final demand and likely keep the “inventory build” story as a 2009 Q4 adjustment as opposed to a new cycle. Real GDP growth is likely to come in between 4.0-5.0% for Q4 and almost collapse towards 1.0% in Q1 (current quarter) and the surprise would be a Q2 relapse. Tough to handicap, but the expected second half slowdown (in some circles) may be sharper and earlier than many believe.”
David Indiviglio of The Atlantic seems to concur:
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“So retail sales reinforce the news that November was great. But they also confirm that December was not-so-great. Without solid consumer spending, it will be difficult for companies to justify more hiring.
And inventories rose more than thought in November. So, despite the decent sales that month, we still saw more production than purchasing. And given that December’s sales were weak, I’d expect that inventories rose even further last month.
Of course, 2009 is over, and thank God. But if it left excess inventory in its wake for the first part of 2010 to deal with, then that decreases the likelihood that we’ll see significant job growth towards the beginning of the year. Given December’s unemployment report, that’s probably not surprising, but does confirm our fears.”
After a bullish start to the year the reality of a more moribund than expected December from both the employment and consumer fronts is sending a shiver through the market. Today Goldman Sachs takes a deeper view of last week’s lower than expected employment numbers and concludes that layoffs are tailing off but hiring is not picking up and therein lies the rub:
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“the problem with having a weaker December number is that the consumer spending momentum heading into the first quarter is pretty well non-existent (a zero build-in on the parts of the retail sales report that feeds into the consumer spending segment of GDP). Businesses will see what is happening to final demand and likely keep the “inventory build” story as a 2009 Q4 adjustment as opposed to a new cycle. Real GDP growth is likely to come in between 4.0-5.0% for Q4 and almost collapse towards 1.0% in Q1 (current quarter) and the surprise would be a Q2 relapse. Tough to handicap, but the expected second half slowdown (in some circles) may be sharper and earlier than many believe.”
Weak retail sectors included apparel, furntiniture, autos, general merchandise, and, surprisingly, electronics. E-tailing, pharmacy, sporting goods, hobbies, books, and toys were the bright spots.
So employment remains a key variable driving retail sales and inventory levels which in turn drive production and employment…a virtuous or not so virtuous cycle.
