Less Than Meets The Eye
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Dig a little deeper into the latest retail sales and jobless claims numbers, and you’ll find there’s less than meets the eye. December chain store sales rose 2.3% after an increase of 2.1% in November. This was better than expected after the first three weeks of the month as a last minute surge of shoppers seeking bargains bailed out what would have been a disastrous season. Although this made retailers relatively happy when compared to what could have been worse, the holiday season was still extremely weak. We previously thought that 2001 would turn out to be the slowest retail season in a decade, and it missed being so by a whisker. The combined 2.2% year-over-year growth for November and December barely beat the increase of 2.1% registered in the same period of 1995, which was the worst in the past 11 years. The National Retail Federation called the current season the most promotional in history with some price cuts as much as 75%. All this proves is that if retailers have a certain amount of inventory on hand, they will move it at any price. We’ll get the dismal earnings results after the fiscal year ending January 31.
Looking ahead, we doubt that retailers will re-stock with any enthusiasm until they are more confident they can move goods without steep discounts. This will be difficult, however, in view of continuing extensive layoffs, the record levels of consumer debt and the determination of corporations to cut expenses.
The jobless claims number of 395,000 for the week ending January 5th is not nearly as rosy as the headlines would have you believe. Anything at 400,000 or more is generally regarded as recessionary, and the number has been running above that amount for the vast majority of weeks since early April. (In fact, on April 2nd we wrote a comment called, “The Recession is NOW”). The initial claims surged even higher following the terrorist attack and any apparent decrease since that time is only a pullback from an unusual event. The widely followed four-week average is still at a recessionary 410,000. Furthermore, it is likely that a large number of newly unemployed in California have delayed filing, as the maximum weekly benefit increases from $230 to $330 this week. We also note in recent days the possible beginning of a new round of layoff announcements from companies in a diversified group of industries.
All in all, we would not jump the gun in assuming that the recession is over, particularly in view of the steep rally since late September and the record valuations being accorded current and prospective earnings. |
