Nobody expects Sears Holdings (SHLD) to report earnings growth—and the company didn’t disappoint yesterday when it announced a $534 million loss for the three months that ended on November 2 and a 3.1% drop in same store sales.
But yesterday Target (TGT) and Abercrombie & Fitch (ANF) also reported disappointing third quarter sales.
Which certainly “suggests” that the better than expected retail sales growth for October, reported by the Census Bureau earlier this week, is going to turn out, at best, to be very spotty indeed. At 0.4% growth in October, this isn’t a tide running strong enough to lift all boats.
Target, at least, had a one-time “excuse.” The company’s expansion into Canada is proving to be really, really rough going. Costs for expanding into Canada and discounts Target had to offer to move excess inventory at its 124 Canadian stores took 29 cents a share out of earnings for the quarter.
This excuse doesn’t explain, however, why the company reduced guidance in the fourth quarter for U.S. same store sales to “flat,” which would put results below Wall Street expectations.
Abercrombie & Fitch looks like it may have lost its fashion edge just when it needs that boost to carry it through a tough holiday retail season. Read more
Think of the current market this way, as a puzzle where the solution shifts depending on whether you take a long-, medium-, or short-term view. And where the importance that investors afford to the long-, medium, and short-term views itself shifts from hour to hour and day to day.
And, of course, where you have to solve that puzzle with significantly different time horizons depending on which of the three drivers of global financial markets—the United States, Japan, and China—is gathering attention at the moment.
That makes this market very difficult to read, very volatile, and rather scary.
Here’s my guide to what’s going on, what to pay attention to, and what to ignore in the next few weeks.
Consider Friday’s market action as a good example of what we can expect in June and probably into July. Read more
Does it make the disappointing retail sales number this morning any better because we can explain why retail sales fell by 0.4% in March?
I don’t think so. And, in fact, the specific explanation is worrying—if only slightly at this point–for growth in the U.S. economy in the coming months.
Economists surveyed by Bloomberg had expected that March retail sales would be flat so the 0.4% decline is a surprise. Especially, coming as it does, after 1% growth in February.
The likely explanation, and it’s convincing to me, is that what we’re seeing in the March numbers is a delayed reaction to the tax increases included in January’s deal to avoid the fiscal cliff. It’s taken a while for consumers to adjust their spending downward to account for the 2-percentage point increase in the Social Security withholding tax that was part of that package. The Tax Policy Center, estimates that 77% of U.S. households are paying higher taxes in 2013 because the fiscal cliff deal let cuts to the Social Security tax rate expire. In 2012 that reduction in Social Security withholding was worth about $1,000 to a family at the $50,000 income level.
If the lower retail sales numbers are a delayed result of that tax increase, instead of a reaction to a temporary news event or sentiment shift, then we could be looking at a drag on U.S. growth that could persist for much of 2013. Read more
Some pre-jobs report jitters.
The Labor Department is scheduled to release the non-farm payrolls numbers on Friday. Economists surveyed by Bloomberg are projecting that the economy added 200,000 jobs in March.
That wouldn’t be a great report since economists say that making a significant reduction in the unemployment rate would require something above 250,000 new jobs per month, but 200,000 jobs in March would be enough to reassure investors that the U.S. economy continues to chug along despite the baggage of higher taxes and cuts to government spending enacted by Congress earlier this year.
Today’s release of the ADP jobs survey came in below expectations. The private report, which almost never exactly tracks the government numbers, showed a gain of 158,000 jobs in March when economists had been expecting 200,000 net jobs.
And nerves got stretched a little tighter today when the Institute for Supply Management’s survey of purchasing mangers came in below both the February number and below expectations. The index fell to 54.4 in March from 56 in February. Economists surveyed by Bloomberg had expected a 55 reading on the index. (In this index any number above 50 indicates that the economy is expanding.)
With stock market indexes near all time highs, it’s easy to understand why traders and investors might be nervous about Friday’s jobs report. Read more
The lower than expected numbers from the housing sector today and yesterday look like nothing more than a pause after a big move over the last twelve months.
For example, the index of pending home sales, a measure of contracts to buy previously owned homes, fell to 0.4% in February to 104.8, the National Association of Realtors announced today. That was still the second highest level for the index since April 2010 and the February decline came after a 3.8% increase in January.
Yesterday the Census Bureau reported that new home sales fell 4.6% in February from January’s levels to an annual rate of 411,000. That was a below the 426,000 forecast from economists surveyed by Briefing.com. But it was still a 12.3% increase from February 2012.
Reassuringly for anyone trying to judge the strength of the market the median price for a new home rose 2.9% to $246,000. Inventories remained at 4.4 months supply at the current sales rate. That’s a slight increase from the 4.2-month inventory level in January.