Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Retailers Make a Surprising Comeback

Stock-Markets / Sector Analysis Apr 22, 2010 - 06:09 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleJon D. Markman writes: You may be hearing a lot of bearish commentary centering on the premise that the market's advance is unsustainable because it has benefited so much from government spending.

But one big swath of the rise in stock prices has come from retailers, and it's hard to make a direct link between fiscal spending and chain store sales.

When the government pays for things like more highways and military goods, more people gain employment and then their families go out and purchase things at companies like Family Dollar Stores Inc. (NYSE: FDO) - a position in our Strategic Advantage portfolio that is fast on the rise. But that's really a "second-derivative" concept, as the statisticians say.

Employment and wage improvements have been the big catalysts.

Left for dead a year ago, recent data shows that the U.S. consumer is bouncing back in a big way as the economy finally starts generating jobs. That has resulted in a boom in retail sales that has taken even optimists by surprise. So let's look more closely at the numbers.

Household employment has increased at a rate of 371,000 jobs a month, on average, over the past three months - the strongest run in over three years. And retailers surveyed by the economists at the ISI Group Inc. expressed the most positive sentiment seen in six years.

But how does this mesh with the broad measure of unemployment still at nearly 17%?

My research suggests that a nascent wage-inflation spiral might be to blame. Fully 44% of the nation's 15 million unemployed workers have been out of work for more than six months. Such a long period of unemployment erodes useful skills. And many of the long-term unemployed are members of industries that are no longer a big part of the economy - think of all those extra mortgage brokers and real estate agents.

But after cutting payrolls far deeper than the decline in gross domestic product (GDP) would historically suggest, businesses are scrambling to lock up high-quality employees before their competitors do. As a result, the ISI Group's survey of temporary employment agencies indicated wage pressures are building. In fact, they've returned to levels not seen since mid-2004 - a time of economic recovery and low interest rates similar to the one we're experiencing now.

A renewed sense of confidence is encouraging spending among those that possess skills employers demand and are lucky enough to be in growing industries. This increase in spending encourages retailers to order new stock, which encourages wholesalers to place new orders, which causes manufacturers to increase production. Throughout the supply chain, new jobs are created. This increase in employment further lifts spending, and thus continues the cycle.

This so-called "positive feedback" loop is what powers economic expansions. And it's the main driver behind the SPDR S&P Retail (NYSE: XRT) exchange-traded fund (ETF) and individual retail stock positions.

The reality is that the stronger economy has improved confidence, and people who had been putting off purchases are finally feeling good enough about the future to book travel to Las Vegas on Southwest Airlines Co. ( LUV), reserve a Memorial Day weekend at an MGM Mirage (NYSE: MGM) casino, and buy something pretty for the occasion from Limited Brands Inc. (NYSE: LTD). And a portion of those purchases could end up going to American Express Co. (NYSE: AXP), which just broke out to a new one-year high.

An 8.7% jump in same-store sales for an index of 29 retailers tracked by Retail Metrics was 2.6 percentage points above expectations -- a level of new consumption that economist Jeremy Siegel says demonstrates that the recovery is "on a self-sustaining path."

One reason for the significant advances in chain store stocks in the past week was a very positive monthly report by the Census Bureau on monthly sales for retail and food services. Courtesy of analyst Jason Blair at Rochdale Securities, here were the highlights:

•Retail sales rose 1.6% from February to March, compared to the consensus 1.3% gain. Sales are up 7.6% year over year.
•Most retailing categories were up, which shows consumer spending is gaining momentum.
•Auto sales rose 6.7% month-over-month, largely driven by the decline in auto finance rates to the lowest level since 2002.
•Furniture and home furnishings rose 1.5% month-over-month, reflecting a surge of pent-up demand and big-ticket purchases.
•Sales of building materials and garden equipment increased 3.1% month-over-month, the biggest increase since November 2007. This is seasonal of course, reflecting a warming trend, but retailers have said in their reports that they worry about not having enough inventory.
•Apparel sales jumped 2.3% month-over-month, continuing the surge seen since 2009.
So what's next?

I agree with the Rochdale analysis that sees an acceleration of consumer spending, as

a) pent-up demand starts to unwind (e.g. autos and appliances); b) the inventory cycle turns positive and drives production and employment growth; c) credit markets continue to improve; d) consumers feel less bad given the wealth effect of the stock market rally and employment upturn; e) corporate profits surge; and f) personal income growth accelerates.

Chain-store sales in March were up 9% year-over-year and vehicle sales were up 21.3% year-over-year. Throw that together with the rise in temporary employment surveys and mix in a regression formula, and it appears to ISI Group analysts that U.S. household employment is now rising at a 3.3% annual pace, which would actually be as fast or faster than employment growth in supposedly stronger emerging markets in Taiwan and Chile, as well as smaller developed nations like Australia and Canada.

The bottom line for U.S. investors: It's too extended now, but look for opportunities to own SPDR S&P Retail Exchange-Traded Fund (NYSE: XRT) on pullbacks.

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules