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Chris Versace
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Chris Versace is the editor of PowerTrend Profits, a monthly investment newsletter that uses PowerTrends to select those companies best positioned to benefit from the shifting landscape of economics, demographics, psychographics and more. Mr. Versace also edits PowerTrader that also uses... More
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  • Shopping Carts Roll for Discount Retailers, Private Sector Job Growth? 0 comments
    Jun 4, 2010 7:40 AM | about stocks: MA, TJX, TGT, ROST, ZUMZ, ANF, HOTT, BKE, COST, WTSL, BIG, MKC, FDO
     If the generally accepted notion that the domestic economy is one fueled by the consumer, then I suspect more than a few cages were rattled this past week. What I am referring to is the rash of retail sales data out over the past several days, which reinforced the view that consumers continue to stretch their budgets amid high unemployment and a weak job market.

     Late last week, we learned U.S. consumer spending in April fell for the first time since September as modest wage growth was used to rebuild savings. That weakness continued into May per MasterCard Advisors' SpendingPulse, a unit of MasterCard Inc. that tracks spending by credit card, debit card, cash and check.

     More specifically, SpendingPulse found that specialty-apparel sales fell 3.7% in May from a year earlier while furniture sales fell 9.6% and electronics and appliances slipped 0.7%. The combination of these two data streams would suggest that consumer spending has been and will continue to be choppy at best near term.

     On Thursday, a slew of retail chains reported their sales results for May. Sales at Target Corp., the second-largest U.S. discount retailer, rose 1.3% in stores open at least a year, more than the 0.8% estimated gain, according to analysts' estimates compiled by researcher Retail Metrics Inc. The TJX Cos. (which offers off-price apparel and home fashions and owns T.J. Maxx and Marshalls), climbed 4%, beating the 2.5% estimated gain. Sales at Ross Stores Inc. jumped 5%, more than the 2.9% average projection.

     Teen retailers posted mixed results as Zumiez Inc. surpassed projections, while sales at Abercrombie & Fitch Co., Hot Topic Inc. and Buckle Inc. declined by wider-than-expected amounts. Costco reported a 9% increase in same-store sales, which missed analysts' estimates for a 9.7% gain. Wet Seal Inc. posted a drop in sales, but it was less than street expectations.

     In my view, the two key takeaways of the above data are that consumer spending will remain choppy and when consumers spend they will be looking for the best value possible in exchange for their dollars. Not exactly a revelation, but rather confirmation of an ongoing trend that I have been talking about for some time - the cash-strapped consumer.

     Dialing back a bit, retail sales data for April and May are not that hard to fathom given that fresh weekly unemployment claims have remained above 450,000 for some time. Moreover, a recent report shows that only 55,000 private-sector jobs were created in May according to a national employment report published by Automatic Data Processing Inc. (NASDAQ:ADP) and Macroeconomic Advisers.

     I mention this survey because the non-farm payroll data include government workers and we are in the midst of the 2010 census. The hiring of workers for the census is expected to account for the vast majority of the May payroll data. Per Briefing.com, the consensus expectation for Friday's non-farm payroll data is 500,000 jobs compared with 290,000 jobs in April. Excluding temporary census workers, non-farm jobs rose a seasonally adjusted 224,000 in April.

     While the May consensus for non-farm payrolls is 500,000, TrimTabs Investment Research estimates the Census Bureau hired between 350,000 and 400,000 temporary workers in May, while the private sector added between 75,000 and 125,000 jobs. While this is better than ADP's expectation, if this turns out to be the case, it would suggest non-farm job growth excluding the census slowed month over month. While the print on the data may look good, it's another case of having to read below the headline to understand what is really going on.

     The larger question I wrestle with is whether the private sector will create enough jobs in the coming months to offset the job gains, albeit temporary in nature, associated with the census or will the census simply have the same effect as "cash for clunkers" and the recently expired housing tax credits?

    As I wrestle with that and other questions, I continue to favor those companies I have mentioned in recent columns - Big Lots Inc., McCormick & Co., Family Dollar Stores and others. For those seeking exposure to the consumer, I would suggest doing your homework on companies like The TJX Cos., Ross Stores Inc. and Tix Corp. as they cater to the cash-strapped consumer.

     Good hunting.



    Disclosure: BIG, TIXC
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