Consumer Deleveraging and December Retail Sales: What the Numbers Say

We've mentioned many times before that the consumer has a rough 2009 ahead of them and that discretionary retailers could be in the house of pain. The following data simply backs up this thesis. We recently looked at consumer spending during recessions, and you might be slightly surprised at the findings. In the following chart, courtesy of the New York Times, we see that retail sales in December were weak, especially at discretionary retailers.

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You'll also take note that Wal-Mart (WMT) continues to be one of the lone bright spots in a dark consumer world. All along, we have advocated getting short discretionary retailers and going long the likes of Wal-Mart (WMT) and McDonald's (MCD) as a hedge. The thesis here has always been that the consumer will trade down to cheaper alternatives and thus those companies will not suffer as much as normal, non discount retailers. And, after all, its merely a hedge to our overall bearish consumer bias.

Then, courtesy of the Big Picture, we see that consumer deleveraging has actually just really begun. As this trend continues, look for things to possibly get even worse in the retail world.

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As a result of the deleveraging, we've said that the consumer savings rate will have to rise. And, lastly, as the consumer struggles along, they'll turn to their credit cards to get by once they run out of cash. Thus, the credit card squeeze begins and companies with a lot of credit card/consumer debt exposure, like Capital One (COF), will continue to see a rise in delinquencies and charge-offs.

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Comments

[Ishortyou:]

yup the john does that lost their jobs and have mortgages and credit cards are toast, they will bail out on taxes, give their homes away to the IRS for collections, the banks will loose those assets taken over by the IRs, more write downs on the banks as loses, and the vicious cycle repeats itself till we are done with delevering. National Debt 3 times the GDP, 70% of GDP dependent on consumer expending, so no expending, no GDP no way to pay debts on time, creditors will start making calls and lots of defaults coming, we are really in deep doodoo.

Jan 13 09:08 AM