Store Sales

I'm just going to cover the ICSC-Goldman Store Sales and the Redbook in a single article this morning.

Last week, the ICSC-Goldman Store Sales survey showed week-over-week sales down 0.1%, and year-over-year sales up 3.0%. The Redbook, on the other hand, showed year-over-year sales up 2.4% for the same period.

Econoday shows a nice little rally in both figures. The ICSC-Goldman Store Sales are being reported as up 0.2% week over week fro the week ending 3/26, and up 2.6% for the year. For the week ending 3/26, the Redbook is being reported as showing year-over-year sales up 2.6% as well.

ICSC-Goldman Store Sales

Today, what metrics we have are pretty much retail sales figures. For the week ending 3/12, the ICSC-Goldman Store Sales survey showed week-over-week sales up 0.1% (which was rather mediocre), with year-over-year sales up 3.1% (which was fairly impressive). And for the week ending 3/19? Not a whole lot of change, according to Econoday. Week-over-week sales were down 0.1%, and year-over-year sales were up 3.0%.

Remember, this is store sales at major retail chains, so it only represents about 10% of total retail sales. Try not to draw too strong a conclusion from these results.

Mortgages and Sales

We begin the morning off with the MBA Weekly Applications Survey. Last week was pretty bad, with the composite index falling 9.5%, the purchase index falling 5.9%, and the refinance index falling 11.4%. The only bright spot, and this was only a bright spot if you aren't a mortgage broker, is that the average rate for the 30-year fixed-rate mortgage also dropped to 5.12%.

This week? Things have picked up this week, according to the press release. The composite index is up 13.2% for the week ending February 18, with the purchase index up 5.1% and the refinance index up 17.8%. Apparently, people were jumping on the low interest rate bandwagon which headed lower thanks to concerns about Libya. The average rate for the 30-year fixed-rate mortgage dropped to 5.00%[1].

Now, let's move on to department store sales. Last week's ICSC-Goldman Store Sales saw a drop of 1.4% for the week. This week, the data for the week ending 2/19 shows a rebound as major retail chains reported an average of a 2.6% increase in sales. Comparing that to the Redbook, we had a 2.2% increase in year-over-year sales last week, while this week we're looking at a year-over-year increase of 2.7%.

In other words, the handful of minor market indicators we have are looking optimistic. That is all overshadowed, though, by the looming specter of the 10 AM EST release of Existing Home Sales figures for January 2011. The Econoday-surveyed analysts are looking for an annual rate of 5.25 million existing home sales, slightly down from December's 5.28 million annual rate, but we'll find out for sure at 10 AM.

[1] So, if you were refinancing or buying a home last week, and you got a good rate, thank the people of Libya.

Something For Everyone...

Something familiar,

Something peculiar,

Something for everyone:

A comedy tonight!

We've got some store sales,

We've got retail sales,

Something for everyone:

A comedy tonight!

Let's start off with the ICSC-Goldman Store Sales, in which we reflect on last week's major retail chain store sales. The week ending 2/5 saw sales increase 2.2% for the week. And this week - well, the week ending 2/12 - they're fallen 1.4% for the week. But nobody really pays too much attention to this particular metric, except as an indicator for overall retail sales figures, so that's not likely to drive the market around. Not on its own, anyway.

Ah, but retail sales? Now retail sales are huge. If you remember the December figures, they were up 0.6%, or "only" 0.5% ex-auto. The analysts are feeling optimistic, and calling for 0.5% growth in January (with growth still sitting at 0.5% if you strip out auto sales). So that's the analysts. And what does the US Census Bureau think? Well, for the first time in a while, the US Census Bureau is saying that the analysts were a trifle optimistic. The January advance estimate has total (seasonally adjusted) US retail and food service sales for January up 0.3%, while the ex-auto sales were also up 0.3%. Not great, but not terrible either.

Nothing with kings, nothing with crowns;

Bring on the lovers, liars and clowns!

Empire State Survey,

The Redbook measures,

Nothing portentous or polite;

Tragedy tomorrow,

Comedy tonight!

Let's start with the big dog of the pair: the New York Fed's Empire State Manufacturing Survey. This isn't the biggest and most important of these surveys - that honor goes to the Philadelphia Fed's survey - but this is nothing to sneer at. The general business conditions index was at 11.92 for January, and the analysts are expecting that to go up to 15. The survey results beat that handily, rising to 15.4.

The Redbook report, as you may remember, is yet another measure of sales. It pales before the might of the Retail Sales figures we just discussed up above, but it's still something of a leading indicator. And the indications are pretty good. Last week they were largely in agreement with the ICSC-Goldman Store Sales. This week, they deviate - Redbook store sales are up 2.2% (this is a year-over-year figure, though).

Something imported,

Something exported

Something for everyone:

A comedy tonight!

Something in stock,

Something that's not,

Something for everyone:

A comedy tonight!

As a lovely companion to the trade balance figures from last week, we now have the Bureau of Labor Statistics' US Import and Export Price Indexes. Back in December, export prices were up 0.7% for the month and import prices were up 1.1% for the month. Analysts never actually seem to weigh in on this one, so let's skip straight to the January results. The US import price index was up 1.5% for January, while the export price index rose only 1.2%. The import costs were driven by a 3.9% increase in fuel prices. What gains we had in export prices primarily came from agricultural exports, which were up 3.2%.

And business inventories? Well, in November they were up 0.2%. For December (and yes, there is a two month lag on this), the analysts are expecting a 0.7% increase in inventories. Now, before we go on to what actually happened, let's talk briefly about why anyone would care about business inventories. Why do we care? Well, they are serve as an indicator of future production and sales. No company - producer, wholesaler, or retailer - builds up massive inventory supplies without immediate plans to put them to work. So, if inventories are up, the companies with the increased inventories are likely expecting things to improve.

So, back to the US Census Bureau for the December 2010 Manufacturing and Trade Inventories and Sales report. And business inventories are overall up 0.8% from November.

Nothing with gods, nothing with fate;

Weighty affairs will just have to wait!

Nothing that's formal,

Nothing that's normal,

No recitations to recite;

Open up the curtain:

Comedy Tonight!

What's Happening In The World?

There really isn't a whole lot of economic data coming out (unless you count the 164 companies releasing their earnings announcements for today). We do have the ICSC-Goldman Store Sales figures. If you recall from last week, those showed a 1.0% decrease for the week ending 1/29, and a 1.6% increase year over year. Things have gotten a little better for the week ending 2/5. For the week major retail chain store sales are up 2.2%, and this has boosted the year over year sales to a 2.5% increase.

Mostly, though, the market is going to be driven by news today. And the news that will be driving the market will be largely coming out of China where, in celebration of the end of the Chinese Lunar New Year holiday, the People's Bank of China has increased the benchmark one-year deposit rate by 25 basis points to 3% and the one-year lending rate by 25 basis points to 6.06%. The move is largely designed to fight inflation (which was at 4.6% as of December, but is expected to rise substantially as food prices skyrocket), and this increase is not expected to be the last one for the year. On concerns that this will dampen demand, most commodity prices have already dropped.

Here in the US, the eyes of the financial sector will be on the FDIC's proposal to limit bonuses paid to executives at financial companies with $50 billion or more in assets. The plan requires 50% of the executive's bonuses to be deferred, and then how much of that deferred bonus they actually receive will be based on the performance of the company. Also, since these bonuses are typically paid out as stock or stock options, the FDIC is contemplating not allowing hedging strategies on the deferred bonuses. The idea is that, if the executives aren't allowed to protect themselves from a downturn in the stock, they might actually make good long term decisions[1].

Speaking to the US Chamber of Commerce yesterday, President Obama discussed the possibility of tax reform. "Another barrier government can remove is a burdensome corporate tax code with one of the highest rates in the world," he said[2]. There was a lot of conciliatory language in the speech, largely because the President was speaking to what can charitably be described as a hostile audience. But still, we now have the President at least talking about corporate tax reform, so the markets might like that.

And, in Middle Eastern news, Egypt has announced that it has a plan and a timetable for the peaceful transfer of power. There are no details about what those plans are, other than it is said that there are plans, and there is a timetable. Also, the government has promised no reprisals against the protesters. Other than killing some 300 of them. And using the military and police in plain clothes as agents provocateur. And arresting individuals suspected of being leaders of the protesters and keeping them blindfolded in prison for weeks. And possibly having a lot of them rounded up, imprisoned, and tortured as soon as the West gets distracted by the next big news story. But other than that, no reprisals[4].

[1] It's a great theory. Actual historical data suggests that the executives are far more likely to put effort into changing the regulations, though.

[2] It's up in the air as to how accurate this is. Checking Wikipedia, we find that the US has a progressive corporate tax rate that can run anywhere from 0% to 35%. While there are only 10 other nations listed on the Wikipedia chart that have a rate at 35% or higher, there are two things that make me question his statement. First, only 3 of those nations have a progressive corporate tax rate. The other 7 are flat taxes. Second, according to the GAO, the average US effective tax rate on the domestic income of large corporations is only 25.2%, with 37.5% having an effective tax rate of 10% or less (and, in all fairness, 25.6% of large corporate taxpayers having an effective tax rate in excess of 50%)[3]. So the actual situation is, obviously, far more complicated than a single sentence soundbyte from a speech to a hostile audience would let on.

[3] Here's how that can work, quoting from the GAO report: "A corporation’s average effective tax rate can exceed the statutory rate because of differences between financial and tax reporting. For example, depreciation for tax purposes follows the Modified Accelerated Cost Recovery System, which results in depreciation at an accelerated pace compared to depreciation for financial purposes. Firms that are no longer investing may show financial income lower than tax income in years where they have exhausted depreciation for tax purposes but continue to deduct depreciation for financial purposes. Similarly, items that cause a greater amount of income in the current period for tax purposes than they do for book purposes could result in average effective tax rates above the statutory rate. For example, bad debt expense is deducted when estimated for financial purposes but is not deductible for tax purposes until the debt has actually gone bad."

[4] And if you can't trust the word of a brutal and repressive head of a dictatorship, whose word can you trust?

Sales And Manufacturing Data To Warm The Cold Winter Market

Well, we hope the sales and manufacturing figures will warm the market, anyway.

First, we have the ICSC-Goldman Store Sales figures, which is a "weekly measure of comparable store sales at major retail chains". It specifically focuses on general merchandise - about 10% of total retail sales - so it isn't a huge market mover. Nevertheless, it never hurts to keep an eye on even the little details. Everything adds up. For the week ending 1/29/2011, the rate of change in store sales tracked by the index increased by 20 bps, to close at a -1.0% decrease in sales. For the rolling year, store sales are up 1.6% (a decline of 120 bps from the previous week).

There's no link for the ICSC-Goldman Store Sales original data, because they want a paid subscription.

Next, we have the Redbook, which is "a weekly measure of sales at chain stores, discounters, and department stores". So it tracks slightly different things from the ICSC-Goldman Store Sales. Interestingly enough, though, it's showing similar figures as the ICSC-Goldman report: rolling year sales for the week ending 1/29 are down 50 bps to a 1.8% increase.

Again, the Redbook report wants a paid subscription. So no link.

Taken together, the two reports indicate quire strongly that retail sales are slipping. Keep an eye out for the official retail sales report when the Census Bureau releases it on February 15 - it may very well be disappointing.

Next up is the Institute for Supply Management's Manufacturing Index. In December, the overall index was at a level of 57.0%, and the consensus expectation is that it will rise to 57.5%. The actual figures, as reported on the ISM web page, are even better. The index has hit 60.8%, its highest level since May 2004 and the sixth consecutive month of month-over-month growth. Drilling in to the report:

• New Orders are up 580 bps to 67.8%. The industries reporting new orders growth are petroleum & coal products, primary metals, computer & electronic products, transportation equipment, wood products, machinery, fabricated metal products, miscellaneous manufacturing, chemical products, paper products, electrical equipment, appliances & components, and food, beverage & tobacco.
• Production is up 50 bps to 63.5%.
• Employment is up 280 bps to 61.7%
• Exports are up 750 bps to 62.0%
• Imports are up 450 bps to 55.0%

Finally, construction spending. November saw a 0.4% increase in construction spending, and the analysts are expecting that to slow to only a 0.2% increase in December (yes, there is a full month worth of lag on this lagging indicator). And what does the Census Bureau have to say about that expectation. They laugh, laugh I say, in the face of the analyst's expectations. Constructions spending actually decreased at a rate of 2.5%. Private construction sank 2.2% for the month, while public construction sank 2.8%.

In summation? Last week was all right for retail sales, although they show signs of slowing. December was good for manufacturers, terrible for construction. The Street will most likely be relatively happy with these results. Except for that part of the Street that invests in construction.