The pundits came out to spin retail sales numbers as being not as bad as they looked, etc. However, they are actually worse than they appear when we take a step back and look at the big picture at what has changed over the past couple of years. It is interesting that anyone is trying to spin the retail figures as anything other than horrible, but I guess when you are long only mutual funds you know where your bread is buttered. It is not in showing how bad the data really is.
CNBC, (the ultimate spin machine, they should change their name to Spin Co.), liked to point out that electronic sales were up as well as furniture sales. Well, how about that - 2 areas that went up out of how many? We won’t mention that, but the negative list is much longer. Here is what is important to note, electronics went up because prices keep dropping, check your email for discounts from Dell (DELL) and Best Buy (BBY), but the real story is the iPad. What would happen if we subtract Apple's (AAPL) iPad sales out of the mix? I am willing to bet electronic sales look less rosy than the headline figure and the point is, how long will the iPad continue to sell so well? Who knows, but probably for a while. As far as furniture sales, well, you got me - other than that I am sure the sales were rich and prices are still dropping.
The real story, what even I forgot to think about when the figures were released, is the fact that there is much less competition than a year or so ago. Best Buy used to compete against Circuit City and Comp USA, granted they were smaller players, but BBY is still facing less competition than they once did. How about all the mom and pop stores that are gone? There are far less companies vying to all this business out there and the players that are left have zero pricing power which is downright scary in my opinion. On top of all of this many of the large stores closed down their less profitable stores as well so we had consolidation from a competitive point of view and consolidation from corporate point of view, and sales are declining.
While this is not good news for the bulls, there is no way to really spin this, it is really bad news for the economy as consumer spending is such a large part of our GDP. However, I do see some positive things happening, people are spending less on junk they simply do not need. Let’s face it, the iPad may be cool, but does one really need one? This means that the less people spend on all of this junk, hopefully, the more they will save. While this makes many of your cringe, this is a very good thing. As a country we need to save more and spend less which is counterintuitive to most people, but with a higher savings rate we might be able to start fixing some of our fundamental problems in our country, like spending being some 70% of GDP. Basically, we need to save more, produce more and spend less.
As far as the other “bright spot” on Friday, consumer sentiment reached a 2 ½ year high of 75.5. Surely this is fantastic news and a reason to buy, buy, buy, but this number is still in recession territory and diverges drastically from the ABC Weekly Consumer Comfort Index. Of course polls are polls and will vary depending, but one thing is clear what appeared to be a huge upturn in the economy was a head fake. The data, most of it, is pointing towards another slowdown as the stimulus wears off. There is little political will to do another stimulus package, which is actually a good thing believe it or not. Things may get worse, but hiding problems are far worse than getting them out of the way.