Retail stocks shellacked even as consumers open their wallets

Friday's retail sales report dispelled any notion that the consumer is afraid to spend, writes Morningstar's Bob Johnson.

Robert Johnson, CFA 16 May, 2016 | 5:00PM

It was a relatively quiet week for world markets as the major equity markets generally dropped between 0.5% and 1.5%. A lot of the weakness was company-specific, with U.S. retailers getting pounded as company after company reported terrible results with little optimism for much improvement. Lower inventory data generally kept oil and commodities prices moving higher, with general commodity indexes up about 2.5%. Bonds tracked even lower with the U.S. 10-Year Treasury yield now down to just 1.71%, off another 0.07% from last week as a result of poor retailer data and a surprisingly high unemployment claims figure (that may have been retail-related).

By Thursday, even we were growing increasingly worried about the U.S. economy with the combination of a softer employment report last week, a higher initial unemployment claims report and an unending stream of disappointing first-quarter retailer earnings reports. A broad package of multiline retailer stocks was down more than 7.5% in a single week—and that included a few ringers like several of the dollar stores. However, the April retail sales report on Friday dispelled any notion of a consumer that was afraid to spend. Headline, month-to-month growth was 1.3%, well above the consensus of 0.8%. Much of the increased spending was in more discretionary categories. It became clear that retailer problems were not because of consumer lethargy, but because of shifting spending interests and massive channel shifting to online venues. The report was a game-changer and solved a lot of mysteries concerning apparently high consumer incomes and increasingly worried retailers. Unfortunately, poor retailer reports will still keep strong pressure on retail employment for months. New hiring at Amazon AMZN-related entities won't offset all those losses. And retailers probably have to play catch-up with layoffs as now there is no denying that weather was not the root problem at brick-and-mortar retailers.

The strong retail spending report combined with revisions to older data sent economists back to the drawing board as they raced each other to raise second-quarter GDP estimates (even with likely upward increases to first-quarter GDP data) to as high as 3%. Just a week ago it was hard to find many who seriously believed U.S. GDP could grow much faster than 2%. Our 2.0%–2.5% GDP growth rate for all of 2016 appears safe for another day, with consumers continuing to lead the way.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

About Author

Robert Johnson, CFA

Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis for Morningstar.

© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies