Thursday, November 08, 2007

"Grim" Shopping Season

by Calculated Risk on 11/08/2007 11:52:00 PM

From the NY Times: Stores See Shoppers in Retreat

Consumers have rendered a verdict on the coming holiday season: grim.

From discounters like Wal-Mart to luxury emporiums like Nordstrom, the nation’s biggest chains reported the weakest October in 12 years yesterday.
...
Sales at stores open at least a year, a crucial yardstick in retailing, rose just 1.6 percent last month, the slowest growth since October 1995, according to the International Council of Shopping Centers. The poor results — on the heels of a dismal September — have made this one of the worst fall shopping seasons in decades.
From the WSJ: 'Affordable Luxury' Stores Feel Economy's Pinch
Yesterday Nordstrom Inc. reported a rare 2.4% drop in October same-store sales, steeper than the 1% decline many analysts had expected. Morgan Stanley analyst Michelle Clark this week downgraded Nordstrom's shares to "underweight," the equivalent of a sell rating, citing weaker spending by the affluent middle class, rising credit-card delinquencies and the luxury retailer's exposure to risky housing markets in California and elsewhere.
How long will the slowdown last? From the NY Times article:
“We expect the challenging retail environment to continue for the foreseeable future,” [Myron E. Ullman III, chief executive of J. C. Penney] said.
The housing slump is definitely hurting consumer spending in Florida, Nevada, Arizona, and California - all states that are in or near recession - and probably impacting spending in many other places too.

We need to keep watching Mortgage Equity Withdrawal (MEW). MEW is probably declining sharply in Q4 with tighter lending standards and falling house prices, and that will likely directly impact consumer spending. In simpler terms, the Home ATM is running out of cash.

note: the advance MEW estimate suggests that MEW was still been pretty strong in Q3.