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The International Council of Shopping Centers (ICSC) produces its Weekly Same-Store Sales data every Tuesday. This week, the data seems to offer indication that consumers are concerned about the government shutdown and debt ceiling uproar. For the economy, this is critical as we enter the busiest buying season of the year. Furthermore, other consumer relative data over the past couple months has shown about as well as yesterday's fad, so perhaps investors in the retail sector should take heed as well.

The ICSC Tuesday reported that the pace of weekly same-store sales at retailers' stores open for at least a year were notably softer. While Redbook's year-to-year measure typically runs higher than the ICSC view, it also indicated a slippage in sales growth this past week.

Week Ended 10/5Week Ended 9/28
ICSC Week-to-Week Change-0.1%+0.2%
ICSC Year-Over-Year Change+1.8%+2.1%
Redbook Year-to-Year Change+3.3%+3.8%

While weekly data can be influenced by weather and holidays, the year-to-year comparisons seem to vet that possibility and confirm slowing activity. What we do know is different about this week is the fact that the U.S. government is shutdown, and more importantly for consumer spending, the media is making sure Americans know about it. In fact, the truly dire consequences of a debt ceiling debacle have been described by the President, the media and everyone else who could benefit from the attention as potentially "catastrophic" and likely leading to a deep recession. That's not the kind of discussion that inspires Americans to go out and spend money.

Meanwhile, and just as concerning, I recently noted one Tea Party Congressman's misguided disregard for the October 17 deadline as he discussed an October-end Treasury auction on television Monday. In my expert view, even approaching the deadline could insight rating agency downgrade of America's sovereign credit rating again, and that is highly troublesome to me. If two rating agencies were to downgrade our credit, it would be equivalent in its impact to the economy as a real default on our sovereign debt. Passing the deadline is unfathomable to just about everyone but the sector of Congress I describe as holding this issue hostage. It's my view that the stock and bond markets will begin to truly reflect panic on or before October 17 if it appears the deadline will pass. Depreciating financial securities affect the pocket books of every American with a corporate pension plan, and thus, affect consumer sentiment and spending.

American consumers already have enough reason to worry, given a still fatigued U.S. economy with its lagging employment recovery. Though, until recently, investors have been unfazed by most crises. Still, the really serious issues do finally garner investor attention. For instance, Americans have gotten used to upheaval overseas, but when it seemed we might get involved in another war, stocks started lower. The same thing is happening as this unreasonable bargaining chip is placed on the roulette table. In fact, it's Russian roulette that the U.S. Congress is playing, with the full faith in credit of the United States at stake. It's not an issue up for gambling, and yet it is being put into play today.

Consumers and investors are being made aware of that fact, no matter which channel they choose to watch or website they determine to read. And now that the consumer seems to reflect worry, a recently hot group of stocks is also reflecting it. Consumer discretionary and retail store shares have been market leaders this year, as our table below illustrates. It may be time to take profits.

SecuritySince September EndYear-to-Date
SPDR S&P 500 (SPY)-1.5%+16.2%
Consumer Discretionary Select Sector SPDR (XLY)-2.4%+24.7%
SPDR S&P Retail (XRT)-2.8%+27.8%
Wal-Mart (WMT)-1.4%+6.8%
Amazon.com (AMZN)-3.0%+20.9%

Wal-Mart stands out in this table, and not in a good way. It has lagged the performance of the other four securities, including its online rival, Amazon.com , which is up sharply this year but down the most over the last week. Wal-Mart is America's most important brick and mortar retailer, but it has struggled on a relative basis of late. That is in part due to a September report that inventory was piling up at the megastore chain. The inventory issue was described by an executive of the company, as relayed by a CNBC report I witnessed, as a part of doing business in retail. However, I posit that if Wal-Mart, the destination of America's poor and new poor, is seeing slower sales, then there's a broad-reaching problem.

Chart forWal-Mart Stores Inc.

Chart at Yahoo Finance

Amazon.com is down after this report by Barron's, but its valuation has been questionable for some time. If consumers are cutting back even at discounters, then we really have a problem, and so might shareholders of even Amazon.com and Wal-Mart.

Chart forAmazon.com Inc.

Chart at Yahoo Finance

There are profits to be taken in the consumer and retail sector, as evidenced by the gains in the XLY and XRT securities this year. Furthermore, the month of October often offers disappointment, and can be a transition period due to the end of fiscal year for many institutional investment funds around this time. With important profits at stake now in the retail and consumer discretionary stocks, and with signs of consumer sentiment falloff and spending issue, investors in the segment should likely take heed and sell the group.

Economists should also note the warning signs in this critical driver of the American economy. If I may conclude with one informal point: I believe that any economist not advising government representatives today of the dire risk in dealing in the debt ceiling issue is an irresponsible economist wasting his expertise. It is up to the experts to cure ignorance about economic issues. I'm doing my part here.

Source: Take Heed Of The Retail Sales Warning About The Debt Ceiling