RetailSails'  Instablog

As the U.S. equity markets set new highs for the year, consumer confidence continues to show signs of stabilization. The Reuters/University of Michigan Surveys of Consumers said its preliminary index of consumer sentiment for September rose to 70.2, the highest since June, from 65.7 in August. This was above estimates expecting a reading of 67.3, and roughly back to the level of September 2008, which was 70.3.



The Current Economic Conditions Index rose to 71.8, up from 66.6 in August and 75.0 last September. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 69.2, up from 65.0 in August and above the 67.2 recorded last September.

Within the survey, the 12-month economic outlook index rose to 79, the highest since September 2007, from 69 in August. The 1-year inflation expectation eased to 2.6, the lowest since March, and down from 2.8 in August.


 

“Confidence rebounded in early September as consumers increasingly expected the economy to improve despite their reluctant conclusion that their own financial situation would remain quite problematic for some time,” the Reuters/University of Michigan Surveys of Consumers said in a statement.

Because of unemployment worries and lack of income gains, improved confidence has yet to translate into increased spending. If we look at results from the consumer survey going back over 50 years, we see that confidence remains at extremely low levels. Though we appear to be emerging from the longest post-war recession, now entering its 22nd month, consumers have a long way to go before they will be comfortable spending again.

 

Over 30 retailers reported monthly sales results for August over the past two days. While many areas of the economy have been showing relative improvement over the past few months, there have been few bright spots in retail. However, August results provide some hope that things are finally starting to turn around.

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August ended with a whimper for retailers. For the third consecutive week, both ICSC and Redbook reported year-over-year declines in U.S. Chain Store Sales as back-to-school season failed to spur demand:

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The National Restaurant Association said today that the Restaurant Performance Index, a monthly composite index that tracks the health and outlook for the U.S. restaurant industry, improved slightly in July to 98.1, up 0.3% from it’s June level. However, the index remained below the 100 level, which signifies contraction, for the 23rd consecutive month:

The index is comprised of the Current Situations Index and the Expectation Index.

The Current Situations Index, which measures trends in same-store sales, traffic, labor, and capital expenditures rose 0.2% in July to 96.8. This was the first improvement in 3 months, but this measure has remained below 100 for 23 consecutive months.

The Expectation Index, which measures restaurant operators’ 6 months outlook on same-store sales, employees, capital expenditures, and business conditions rose 0.5% from June to stand at 99.4. While the index improved in July for the first time in 3 months, the index has posted prints below 100 in 21 of the last 22 months:


 

Similar to results we have seen in consumer confidence and sentiment in recent months, the outlook from restaurant executives seems to be getting more upbeat. The NRA said:

“Although restaurant operators continue to report soft same-store sales and customer traffic levels, they are more optimistic about improving conditions in the months ahead. Restaurant operators reported a positive six-month economic outlook, and the proportion expecting higher sales rose to its highest level in three months”

However, digging down into the details shows that the slight improvement hardly provides for an optmistic outlook:

• 26% of operators reported a same-store sales gain between July 2008 and July 2009, up from a record-low 22% of operators who reported positive sales in June. 58% of operators reported a same-store sales decline in July, down slightly from 61% who reported negative sales in June

• In addition to sales declines, operators reported negative customer traffic levels for the 23rd consecutive month in July. 23% of operators reported an increase in customer traffic between July 2008 and July 2009, up slightly from 19% who reported similarly in June. 59% of operators reported a traffic decline in July, compared to 60% reported lower traffic in June

• 31% of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up from just 24% who reported similarly last month. In comparison, 33% of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, matching the proportion who reported similarly in the previous two months

• 32% of restaurant operators said they expect economic conditions to improve in six months, up from 24% who reported similarly last month. In comparison, 24 % of operators expect economic conditions to worsen in six months, down from 26% who reported similarly last month

Much like the results and outlook for other retail sectors we have seen, the restaurant industry continues to struggle with weak demand from cash-strapped consumers. Most executives are hopeful things will start to improve, especially as we head into the fall and companies will be dealing with very weak comp store sales from last year. However, we don’t foresee substantial improvement for the 2nd half of this year, as consumers are unlikely to increase discretionary spending as long as worries about unemployment and income persist.

 

While we are only roughly halfway through the back-to-school shopping season, investment bank Global Hunter Securities put out their early estimate of holiday retail sales yesterday. The company forecasts a range of a 1% increase to a 1% decrease from the year ago period, which showed a 7.6% decrease from 2007.

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Gap Inc. put out 2 press releases today, the first announcing their fiscal 2nd quarter earnings, and the 2nd highlighting promotional events to celebrate the company’s 40th anniversary. The company is hoping that investors cheer the fact they were able to post earnings roughly in line with last year. If not, there will still be a celebration, as the Gap will be outfitting floor traders on the NY Stock Exchange with Gap jeans tomorrow, and hosting a nationwide simultaneous acoustic concert in its more than 700 stores tonight.

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