Retail Sector Springing to Life? - David Rosenberg Busts This Myth

David Rosenberg, Chief Economist of Gluskin Sheff and former Merrill Lynch economist busts the retail sales revival myth:

Myth: There are signs of life in the retail sector.

Reality: October auto sales in the U.S. did pick up from September’s abyss, but this was still the eighth worst month in the last 27 years. And yes, it does look like U.S. chain store sales are going to come in somewhere between +1.0-2.0% year-over-year. But beware. This actually says more about the detonation that took place a year ago — the “base” for the year-over-year calculations — than anything truly robust at the present time.

Also, don’t forget that these are YoY same store sales from surviving retailers. Thousands have gone bankrupt in the last year, for example Circuit City, which for sure has helped BestBuy’s activity, and there are countless other examples. So the data, for lack of a better term, are distorted and tell you very little about what consumers are doing in the aggregate.

Myth: The low end consumer is adjusting to the new frugality more than the high end.

Reality: If only it were only so. Unfortunately, a gap has opened between employment-dependant spending and wealth-dependant spending. After all, the investor class is giddy after a 60% rally from the March lows in equities, a rally in which 2.7 million jobs in the U.S. have been lost. Epic. So in October, luxury goods sales came in at +6.5% YoY and jewellry at +7.2%! Meanwhile, department stores who cater to the guy (and gal) on the street posted a 1.5% sales decline (as per MasterCard’s SpendingPulse survey).