by Dave Kranzler, Investment Research Dynamics:
“We are not counting on the consumer to spend more,” Chief Executive Terry Lundgren said Wednesday. With saving rates high, wages growing and employment data steady, Macy’s executives were at a loss to explain why consumers weren’t spending in its stores. “We’re, frankly, scratching our heads,” said Chief Financial Officer Karen Hoguet.
The facts to do not fit the assertions above. The savings rate in this country is not “high” and wages are not growing. The Government may be reporting a high savings rate and growing wages, but that’s merely a product of statistical fiction. Note in the graph to the Untitledright (click to enlarge) that rate growth in outstanding credit card/revolving credit is accelerating. This stands in direct refutation of the “high savings rate” narrative served up by the propagandists.
If you are not getting paid any interest on your bank balance, you will not spend it. If you don’t have money in the bank BUT it’s easy to get credit, you will borrow to spend. The reports coming from retailers suggest that borrowed money is not being spent on discretionary purchases. This can only mean that the middle class is now buying groceries and gasoline using credit card debt.
Does anyone believe the April retail sales report? Really? I told my business partner yesterday that I was expecting a “blow-out” rigged retail sales report for April. Why? Because I was willing to think like a criminal and imagine what I would do, given the plethora of horrific big chain Q1 financial reports and the avalanche of retailers filing for bankruptcy or liquidation during Q1.
Macy’s and Kohl’s reported unexpectedly poor Q1 numbers, missing Wall Street’s expectations badly. CNBC blames the numbers on “unseasonably cool months in March and April.” It’s a convenient excuse that does fit the facts. Nothwithstanding this, the Government statisticians seemed to have not found any issues with weather affecting sales. The discrepancy between the level business activity reported by the country’s largest corporations and the Government grows wider with each passing month.
According to the Government statisticians, retail sales popped up 1.3% over March. Somehow Obama’s worker bees seemed to find retail sales in places not reported by any actual retailer. The big drivers were gasoline, auto sales and apparel. While its true that gasoline sales probably increased, this was a function of price of gasoline rising appreciably – i.e. inflation. It’s certainly not reflective of an uptick in economic activity. Auto sales increased in April vs. March, but Wards reported today that auto industry is taking a big chunk of production down this month. Apparel? Seriously? After the long line of retailers that reported horrible first quarter results and significantly revised the outlook
Macy’s reported comparable sales down 6.1%, Kohl’s comp stores down 3.9% and traffic down 5%, Nordstrom’s same store sales down 1.7%. These numbers are complete disaster from a retailers perspective and they reflect the fact that the middle class is quickly running of room to borrow money on credit cards and home equity loans. This is going to translate into an cliff-dive in economic activity that I believe is hitting now.
Nondiscretionary spending on health, insurance, education and housing has taken an extra 4% out of personal-consumption expenditures in 2015 compared with 2000, according to Craig Johnson, president of consulting firm Customer Growth Partners. That has reduced the discretionary spending available for traditional retailers by $500 billion–more than the combined annual U.S. sales of Wal-Mart Stores Inc. and Costco Wholesale Corp. LINK
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