Wednesday, June 5, 2013

Retail & Consumer Trend Update

Though the universe of companies reporting continues to shrink, we will get a decent picture of consumer spending trends as about 15 retailers will report May same-store sales tomorrow morning.

Consumers entered 2013 with a tight hold on their wallets in the face of headwinds including high gas prices, delayed tax refunds and higher payroll taxes, but the last few months have brought some relief as the job, housing and stock markets have all continued to improve.

Retail Sales

The ICSC said chain store sales rose 1.9% from the prior week and jumped 4.3% year-over-year during the Memorial Day week, the best gain in over a year, "most likely driven by holiday sales, the release of some pent‐up demand and stronger high‐income household confidence."

the ICSC-GS consumer tracking survey found that demand was steady, but good, at department stores, but weaker at apparel and furniture stores. However, business was impressively strong at discounters, dollar stores, wholesale clubs, electronics stores and extremely strong at specialty stores such as book and jewelry stores.
"The weekly sales pace has been volatile for quite some weeks battered by weather and economic uncertainty, so this week’s strengthening may not last," said Michael Niemira, ICSC's vice president of research and chief economist. "Overall it was a good way to end the fiscal month, however, time will tell if the overall strengthening will continue in the coming weeks."
According to Weather Trends International, average national temperatures for the week were a negligible 0.1°F colder than last year, but 1.6°F above its long‐term trend. The was the 5th straight week temps were above the long-term trend.

WTI observed that "the eastern half of the nation went from the ice box with snow in New England early in the week to the frying pan later as the first official heat wave of the year brought high temperatures into the 90s. After very poor summer category sales over the holiday weekend, the hot weather by the end of the week brought a huge turnaround in demand for air conditioners, fans, bottled water, pool supplies and suncare."

Despite adverse weather conditions in April, consumer pent‐up demand and a stronger lift from the wealth effect (from upward trending housing and stock prices adding to home and portfolio value) helped to lift performance. ICSC anticipates that May sales will increase by 2%-3% in total (and approximately 3% to 4% less drug stores).

Redbook Research reported that same-store sales rose 2.9% over the prior year last week and were up 2.7% for the month over last year, or 0.6% higher relative to April, in line with targets.

Sales were boosted by Memorial Day promotions. Retailers also reported strength in merchandise relating to school graduation such as women's wear, men's wear, footwear and women's accessories. Seasonal demand is expected to continue to drive business through June, but will likely moderate in July, the transitional month ahead of fall restocking and the back-to-school period.

ShopperTrak said sales fell 1.5% from the prior week, but rose a slight 0.6% from the prior year for the week ending June 1st. The company said even though most consumers have Memorial Day off, the holiday is typically not a large shopping holiday for GAFO-type goods as most consumers plan outdoor events such as parades, picnics and yard parties, and graduation events. Therefore, food, beverages and other consumables are more in demand.

ShopperTrak expects sales will decline this week to seasonal levels, but should perk up as consumers shop for Father's Day gifts. IBISWorld projects consumers will spend $13.2 billion on their dads this year.

Consumer Confidence

The Reuters/University of Michigan Index of Consumer Sentiment jumped 10.6% in May to 84.5, the highest level since July 2007 and 6.6% above the year-ago period. The Current Conditions Index rose to 98.0, up 9.0% from April and 12.4% higher than last May, while the Consumer Expectations Index was up 11.8% month-over-month and up 2.0% from the prior year.

For the first time in five years, more consumers reported that their finances had improved rather than worsened, with recent income gains the most common reason.
  • 25% of high income consumers spontaneously mentioned gains in their household wealth, including increases in the value of their homes and stock holdings as well as reductions in their debts
  • However, no income gains were anticipated by 54% of all households and by 45% of families with income above $80,000
Buying attitudes toward household durables improved to the highest levels since mid 2007, vehicle buying attitudes were at the highest level since mid 2005, and assessments among homeowners of the current value of their homes were the most favorable since 2007
  • among households with incomes above $80,000, the annual expected increase was the highest recorded since 2007
Surveys of Consumers chief economist, Richard Curtin, said "The surge in consumer confidence is exactly the type of economic jumpstart the Federal Reserve intended to result from its aggressive policies. To be sure, consumers still expressed concerns with their financial prospects, especially about income gains over the longer term. It will take actual and repeated income increases rather than simply a renewed optimistic outlook for consumers to permanently revise their income expectations upward. This will occur as consumer spending gains encourage firms to end their hesitancy about hiring, and as higher tax revenues ease concerns over the Federal deficit putting any additional tax increases on hold."

The Conference Board Consumer Confidence Index improved in May to its best level since Feb 2008, rising to 76.2 from 69.0 in April, and was 18.3% above last May. The Present Situation Index was 9.3% higher than April and jumped 48.6% year-over-year, while the Expectations Index was 10.9% higher than the prior month and 6.6% above last May's level.
Lynn Franco, Director of Economic Indicators at The Conference Board, said "Consumer Confidence posted another gain this month and is now at a five-year high (Feb. 2008, Index 76.4). Consumers’ assessment of current business and labor-market conditions was more positive and they were considerably more upbeat about future economic and job prospects. Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll-tax hike, and sequester."
  • Those saying business conditions are “good” increased to 18.8% from 17.5%, while those stating business conditions are “bad” decreased to 26.0% from 27.6%
  • Those claiming jobs are “plentiful” increased to 10.8% from 9.7%, while those claiming jobs are “hard to get” edged down to 36.1% from 36.9%
  • Those expecting business conditions to improve over the next six months increased to 19.2% from 17.2%, while those expecting business conditions to worsen decreased to 12.1% from 14.8%
  • Those expecting more jobs in the months ahead improved to 16.8% from 14.3%, while those expecting fewer jobs decreased to 19.7% from 21.8%
  • The proportion of consumers expecting their incomes to increase dipped slightly to 16.6% from 16.8%, while those expecting a decrease edged down to 15.3% from 15.9% 

Bloomberg said consumer confidence hovered near a five-year high last week as more Americans said the economy was improving and their finances were mending. The Bloomberg Consumer Comfort Index fell slightly to -29.7 from -29.4 the prior week, just above the -28.9 level reached last month which was the highest since late January 2008.

Consumers' feeling on the state of the economy reached the highest level since January 2008 last week, the index measuring personal finances rose from 1.3 to 2.8 and the Buying Climate Index fell to -37.3 from -34.4, but still remains near the level reached in early May which was the highest since November 2007.
"Sustained improvement in employment, gasoline prices and equities, which has created a modest wealth effect among consumers at the upper end of the income spectrum, has continued to support consumer confidence," said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. "Overall sentiment may stall near these levels without a commensurate increase in wages and salaries down the income ladder."
 Sentiment for households earning between $75k and $100k annually reached a five-year high, climbing last week to within a point of the reading for those making even more. Among Americans with annual incomes of $100k or more, the index rose to 8.3 from 5.4 a week earlier. Those highest-income households have registered positive readings for 29 of the past 30 weeks. Households earning between $50k and $75k a year lost ground for the third week, falling to -22.4 from -16.6. The gauge for those earning less than $15k a year was -53.9, an improvement from -57.6 a week earlier.
Rising property and stock values are helping Americans cope with an increase in payroll taxes and wage gains that have barely kept up with inflation. Without improvements in the job market, the bounce in confidence may prove temporary, said Gary Langer, president of Langer Research Associates LLC in New York, which conducts the comfort survey. “Gains in consumer sentiment merit a word of caution,” Langer said. “More forward movement is much to be desired. Without it, the recovery, while clearly under way, may prove painfully slow.”

Gas Prices

According to the EIA, National prices at the pump were basically flat last week at $3.646 per gallon, and a slight 0.9% above year-ago levels. Gas prices have risen 12.6 cents since bottoming at $3.52 on April 29th and are well above the $3.254 level seen in mid-November, but are still 3.6% below the highs reached in late February.

AAA said motorists paid more at the pump than they did one year ago for the first time in 3 months. After 10 consecutive overnight declines, the national average has now increased for 2 straight days to $3.62 per gallon, which is fractions of a penny less expensive than a week ago, but 10 cents more expensive than a month ago, and 3 cents more than the same date last year.

However, AAA continues to expect lower prices as June continues. Prices should drop below a national average of $3.50 per gallon by the end of the month if refineries can transition smoothly from ongoing maintenance to full production.

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