Black Friday Retail Sales Strong – Demonstrate the US Economy is Nowhere Near a Recession
A number of Black Friday retail sales surveys were released over the weekend. All measures pointed to a robust start to the holiday shopping season. Strong data were received from the National Retail Federation, ShopperTrak, and Comscore. None of the individual sales measures are completely reliable, but the collective strength is likely indicative of a higher growth rate in holiday retail sales relative to a year ago. This result, if it holds through the entire holiday season, would be impressive given how US Consumers have continually (and wrongly) been expected to roll over.
The National Retail Federation (NRF) estimated that Black Friday weekend sales were up strongly, achieving new highs in sales volume. The NRF puts a survey together in conjunction with BIG Research. The strong sales estimates from the NRF, which were widely quoted in the popular press, resulted from a survey of 3,826 consumers. With any survey based data there are errors associated with the small sample size and inaccurate responses. Nonetheless, the NRF estimates that the average US shopper spent $398.62 this year vs. $365.34 last year (up 9.1%). The NRF also compiles an estimate of total retail spending. This year’s total Black Friday weekend sales estimate was for $52.4B which was up 16.4% relative to last year’s estimate of $45.0B.
ShopperTrak is a separate retail consulting service measuring mall traffic. ShopperTrak uses laser sensors which are installed in 40,000 retailers around the country. The technology is able to block out employee movement in the stores with special tags the employees are instructed to wear. Traffic counters are an imperfect measurement because you still need to estimate the conversion rate for traffic to actual purchases. Nonetheless, traffic has been under pressure this year, and running negative as retailers raised prices. ShopperTrack estimated that traffic on Black Friday increased 5.1% which was higher than recent traffic trends this year and higher than the 0.3% estimate of traffic growth last year. One complicating factor for interpreting traffic data is that many retailers opened stores at midnight this year as opposed to 4:00am. The additional 4-hours were likely worth less in terms of incremental traffic relative to peak hours in the morning but could have boosted traffic counts by 6-8% for stores that extended hours. Many large retailers opened at midnight on Black Friday but a number of smaller chains did not. The 5.1% growth rate in traffic, while likely inflated by 1-2%, was still strong even after accounting for longer hours.
Comscore measures online retail sales and has also reported strength. During the first 25 days of November, online sales grew by 15%. Thanksgiving Day online sales grew by 18%. Black Friday on-line sales were reported up 26%. Many traditional retailers have been investing in and building their online presence. Some of the internet based sales strength will accrue to the traditional retailers as well.
The fourth quarter is the most important quarter for retail sales, and the holiday period (Black Friday through New Year’s) is the most important period for the fourth quarter. That retail sales growth rates can match or exceed results from last year are impressive given record lows in consumer confidence and heightened political uncertainty. The strength from the US Consumer is a result of three years of a higher savings rate (deleveraging) and the fact that while high, the unemployment rate is slightly lower than it was last year and more Americans are working. Predictions this summer, that the US economy was inevitably headed for a recession, look premature. I believe a US recession will be avoided short of a financial catastrophe in Europe, which still may happen, though it shouldn’t.
Relatively robust consumer spending appears to be supported by lower savings rates (see chart) and low yields (itself caused by rock-bottom interest rates). Savings rates cannot continue falling indefinitely meaning that labor income will need to step up as the main driver of spending. With unemployment high and government transfers cratering, it’s not clear what will drive future economic activity.
interesting insights – but I would disagree somewhat. The savings rate has been 5% for three consecutive years since the financial crisis. While the savings rate dipped in the recent couple of months, the bigger picture view is that the savings has moved back up to a sustainable level in the 3-6% range (again after 3-years of 5%). Households have deleveraged while nominal income has grown. Nominal income is growing because wages and salaries are up (though more would be nice) and because more people are working. This October, BLS estimates that 140.3M people are employed vs. 139.0M people last October. This has contributed an incremental 1% to income growth (beyond any wage/salary increases). Secondly, household networth is growing because of the deleverage, some financial asset appreciation (vs. a year ago) and a more stable housing market.
The transmission mechanism for low yields to consumption has most powerfully been the subsequent boost to asset prices (housing and financial). During the current cycle, the housing market is just starting to stabilize and financial assets have been mixed (more down) for the past 9-months. The Fed has had to push very hard to stay still. I do agree that given a more normalized savings rate, consumption will grow broadly in line with income growth (people working x wage/salary), but you also need to factor in the rate of change in household net worth.
Why no mention of inflation? While these numbers are impressive, without taking into consideration the inflation rate, Black Friday sales were a disaster. Inflation MUST be calculated to get a true representation of changes year over year.
I would view inflation as a separate analysis. For most categories of “goods” inflation isn’t running so high – if you believe government statistics. And even if you don’t, input costs like cotton are down 60% from recent highs (not a typo).
Corporate results and earnings are reported in nominal dollars as is sales growth. I would focus analysis on nominal (actual) dollar sales metrics. From there, you can estimate earnings and cash flow streams. One then would decide how to value those streams. If inflation is under control then higher valuation multiples would be justified. If you believe it is out of control, then value these streams (and the entire market) at lower multiples.
SO. Retail sales came in less than expected. 0.2%. LOL! We’re booming right?
I would remove this article if you want to keep some credibility…
I agree with your observation that retail sales slowed from October to November. I don’t think it goes against the point of my post around Black Friday.
Firstly, the focus was on the Black Friday weekend. It had been reported through numerous surveys that the first three weeks of November were not running very strong. Part of the reason was a weak economy, and part of the reason was unseasonal weather (very warm).
The second point of my post was simply that the strength of retail sales is not at all consistent with a recession in the US (i had never said sales were booming). I stand by this. In November, a month where sales slowed, and the weather wasn’t supportive, we still had nominal growth in retail sales ex-auto of 6.7% y/y% as reported by Census. In 2009, this same metric was running down 5.7%. So quite a difference. I like to focus on y/y growth rates for retail sales not month to month changes because this lines up with how companies report sales and i don’t trust the quirks inherent in the process of seasonal adjustment for retail sales data. Small errors get magnified when you take a month-to-month change and annualize.
btw, the same pattern has reemerged in December. The weather is much warmer than normal, and December looks like it will also be a back end loaded month for retail. This puts a lot of pressure on the next two weeks to come through in the largest month of the year for retail sales.
I’ll continue to monitor retail sales through the holiday season and surely write on this again soon.