Friday, May 30, 2008

Econ Contrarian: Retail Spending


I will continue to pull back the curtain to reveal the public media pieces I was tracking in March and April which led me to decisively take a stand against the near monolithic message of the pending, deep, dark and deadly national economic recession. That's why I title this series of posts the "Economic Contrarian"; they run contrary to the media narrative which has cemented conventional wisdom in a decidedly negative direction.

Due to the myriad of headline links included in this Post, I will only provide commentary here in the Summary. What will follow below is a list of the headlines (with links to the original articles) I was following which demonstrated the economy's strength via the consumer spending sector. Retail spending is traditionally considered an excellent barometer of economic health as it is measure of both:

  • The ABILITY of consumers to spend money (which addresses jobs, income, savings, home equity, available credit, credit ratings, etc) and
  • The WILLINGNESS of them to do so (which captures the consumer's confidence to tap credit, savings, etc verse uncertainty in the ability to repay in the future due to concerns over inflation, job security, interest rates, etc).

Thus, when retail spending is expanding across the board, it is a good measure that the economy is NOT in recession. As you will see below, my reading of the popular media was showing that an expansion of retail spending is exactly what we were experiencing in the First Quarter of 2008. What follows below is a summary of the types of retail spending I was following.


Past Posts on This Topic:

The Economic Contrarian

Economic Contrarian – Trade Deficit

Economic Contrarian – Personal Incomes

Economic Contrarian – Sometimes You Win

Economic Contrarian – Banking Rebound

Economic Contrarian – Industry Leaders & Profits


Summary:

Consumer Retail Spending

Consumer retail spending addresses the regular spending in which consumers engage. These purchases are generally referenced as being "necessities". In recessions (especially sever recessions), however, incomes become constrained due to job losses, spent savings, loss of home equity and "maxed out" credit cards. Thus, finding steady or growing consumer spending is not a sign in an exploding economy, but it certainly nullifies the warning that a recession is skimming all robustness out of the economy.

Examples Include:

Walmart, McDonalds, General Mills (cereals), 3M (products like Post-It Notes), Walgreens, Ebay (it must say something when we place Ebay in the "necessary/consumer" category! – Oh, how dire things are!)


Discretionary Retail Spending

Discretionary spending is an excellent measure of consumer sentiment – the willingness for consumers to part with their cash. While consumer spending may be incorrectly labeled as being "necessary", discretionary spending is not. Consumers generally purchase discretionary items when they feel confident in the security of their savings and/or the continuation and sufficiency of their income. Growth in discretionary spending is a tremendous indication that consumers feel secure in the economy (at least for themselves). It also indicates a continued ripple of healthy economic activity as most discretionary items are carry higher price tags and involved larger supply chains (like automobiles). When purchased, they are funding larger segments of the economy than when someone purchases box of cereal.

Examples Include:

Ford (Automobiles – purchases which could certainly be delayed a year or two), Williams-Sonoma (up-scale home goods), Aetna (health care services can be decreased through lower coverage or higher deductibles), Intel (new computer models are not exactly a requirement in a recession).


International Retailers

Another interesting element of our economy which the media seems to miss and which the Democratic party loves to hate is the International strength of American companies. International sales infuse our economy with cash, funding salaries, driving domestic consumer spending and further strengthening our economy.

Examples Include:

Coca Cola (drinks sold in darkest, most primitive areas on Earth – and beyond), Boeing and Lockheed Martin (aerospace and high-tech sales to foreign governments), Caterpillar (construction equipment)


Entertainment Spending

Entertainment spending could be considered a sub-category of Discretionary spending. I separate it here as this category is an even more stunning example of consumers feeling comfortable parting with their money. Where Discretionary spending may include the purchase of cell phones (no, they aren't "necessities"), Entertainment spending would include the upgrade to high-end cell phones and data plans. Where Discretionary spending may include DVD players from Best Buy, Entertainment spending would include movie tickets and rental clubs like (Netflex, etc).

Examples Include:

RIM (Blackberry data service is NOT a necessity – especially as the subscriber base expands), Viacom (video games), Disney (Theme parks.


The detailed list of headlines with links to the original articles follows here:


Consumer Retail Spending


J&J profits beat estimates

April 15, 2008 03:27 PM ET



Discretionary Retail Spending

Williams-Sonoma profit rises, but outlook cautious

March 27, 2008 07:44 AM ET


Ford swings surprise profit

April 24, 2008 12:47 PM ET


Goodyear posts quarterly profit on price hikes, forex

April 25, 2008 08:29 AM ET


Aetna profit meets Street

April 24, 2008 07:43 AM ET


Quest profit jumps 32 percent

April 21, 2008 02:56 PM ET

Abbott profit rises on sales of drugs, devices

April 16, 2008 07:47 AM ET


Intel posts in-line results, stock climbs

April 15, 2008 04:32 PM ET



International Retailers

Nike quarterly income rises on international sales

March 19, 2008 04:37 PM ET


Boeing profit up on plane deliveries

April 23, 2008 08:12 AM ET


Lockheed Martin profit rises 6 percent

April 22, 2008 07:34 AM ET


Google and Caterpillar power gains on Wall St.

April 18, 2008 04:37 PM ET


Honeywell profit tops Street view

April 18, 2008 08:07 AM ET


United Tech profit beats estimates

April 17, 2008 07:42 AM ET


Coca-Cola profit beats estimates

April 16, 2008 07:53 AM ET

PepsiCo reports higher Q1 profit

April 24, 2008 08:38 AM ET


Cisco reports higher revenue despite economy worries

May 06, 2008 04:21 PM ET


Entertainment Spending

Cellphone market Q1 growth fastest since 2006

April 25, 2008 10:42 AM ET


RIM reports strong profit and rosy outlook

April 02, 2008 04:32 PM ET


Viacom profit rises on "Rock Band", MTV Networks

May 02, 2008 07:45 AM ET


Verizon profit rises on subscriber growth

April 28, 2008 08:00 AM ET


AT&T profit rises on wireless sales

April 22, 2008 08:15 AM ET


Hasbro's profit tops expectations as sales soar

April 21, 2008 07:38 AM ET


Disney results beat Wall Street, shares rise 3 pct

May 06, 2008 04:37 PM ET


DirecTV posts higher profit

May 07, 2008 07:10 AM ET


News Corp profit rises on cable, TV ratings

May 07, 2008 04:05 PM ET




Requisite footnote on the "Econ Contrarian" series:

As with so many other complex issues in this modern world, I don't claim to know what tomorrow holds for the economy. There are just too many competing systems interacting in labyrinthine layers. But, since no one else seems to want to focus upon any of the positive indicators in this complex mix, I think I'll stand in the gap and shine a small, small light to illuminate a few contradictory indicators – indicators which make the more balanced point that while certain segments of the economy will certainly retract a bit after years of unprecedented growth, this doesn't exactly mean the expansion of the new era of Mordor.


On Principle,

CBass




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