The latest consumer confidence report aside, Americans are still apprehensive, especially about their jobs, and that fear is likely to weigh on consumer spending in the months ahead, according to one retail industry consultant.
Burt Flickinger, managing director of retail consultantcy Strategic Resource Group, said the US has just entered a 500-day retail recession, and before it’s over, the US will see weaker retail sales, more store closures and even additional retailers joining Borders in bankruptcy.
Helping to drive the trend is a weak labor market, Flickinger said.
Job growth has remained elusive, pushing the unemployment rate to 9.2 percent. Flickinger also expects more people will be joining the ranks of the unemployed as state and local governments make further cuts to their budgets.
The latest consumer confidence report from the Conference Board showed consumer attitudes perked up from the prior month, but it also captured growing fears about jobs. Those fears are likely to curtail spending, especially when you consider the large numbers of households that are living paycheck to paycheck.
Flickinger also cited the long-term unemployed who will stop receiving extended unemployment benefits this year as another contributing factor. Once the checks stop arriving, these people will have even less money than they do now.
A recent study by Moody's Analytics estimated that close to $2 of every $10 that went into American's wallets last year were payments like jobless benefits, food stamps, Social Security and disability. As the jobless benefits expire, about $37 billion will be drained from the nation's pocketbooks, according to Moody's.
Couple these trends with sky-rocketing inflation for food and clothing as well as for gasoline prices, which are on the rise again, and you quickly see just how pinched the consumer is.
“For the bottom one-fifth, the situation is so tragic, they can’t afford even dollar stores at the end of the month,” Flickinger said.
Earlier this year, consumers had begun to spend again because they began to believe the economy would get better, but now their minds have changed, he said.
Flickinger compares the current climate to that of the time period between 1973 and 1982.
He expects retail spending to slowly fall the rest of this year and into 2012, at which point the decline will become more dramatic.
The bright spot in his forecast is that he expects the retail industry to bounce back in between 2013 to 2014, and usher in a "retail renaissance."
That's because only the savviest of retailers will survive the downturn.
What's interesting about the emerging retail landscape as Flickinger sees it, is that it's not a simple equation of consumers feeling pressure and heading to discounters to stretch their dollars.
Consumers have gotten smarter than that. They're aggressively using coupons and stacking discounts and turning to the retailers where they can get the best deal, he said.
As an example, Flickinger cited Kohl's [KSS 56.00 0.06 (+0.11%) ], which offers numerous weekly coupons as well as other promotional programs such as Kohl's cash, which gives shoppers a coupon they can use at a later date based on the money they have already spent on a recent purchase.
Flickinger also expects that more consumers are looking to Target [TGT 50.64 -0.50 (-0.98%) ]rather than Wal-Mart Stores [WMT 53.62 -0.35 (-0.65%) ] because they have seen that they can sometimes save more money at Target. The problem is those consumers are also buying fewer products when they shop.
This was an observation that emerged from Pepsi's [PEP 64.1312 -0.2388 (-0.37%) ] earnings last week.
"The modest pickup in total consumer spending almost all US businesses saw earlier in the year has reversed in the past several months," said Pepsi CEO Indra Nooyi, during the company's conference call.
And Pepsi wasn't the only company making that observation.
Whirlpool [WHR 72.02 0.24 (+0.33%) ], the world's largest appliance maker said it expected industry-wide shipments to fall 1 to 2 percent in the US this year. Earlier this year, the company had expected shipments to rise 2 to 3 percent.
Even those selling necessities like food and medicine aren't safe. On Monday, Goldman Sachs lowered ratings for both Safeway [SWY 20.33 -0.17 (-0.83%) ] and Kroger [KR 25.00 0.18 (+0.73%) ] to neutral. In the wake of weak second-quarter earnings at Safeway last week, Goldman anticipates more tough times ahead as accelerating inflation hurts demand.
Flickinger bases his forecast on conversations with retailers and trends in their same-store sales. He expects this downturn began the week after the Fourth of July holiday.
This isn't the first time Flickinger has predicted a retail recession. Back in December 2007, he predicted a 700-day retail recession, which was later revised to a 1,000-day downturn.
I tend to agree with Flickinger and thought his comments are very well thought out. He sites a number of on going issues, which reaffirms nothing has really changed on Main Street.
Add in muni budget resolutions this year and next year, and some day tax code changes from Uncle Sam trying to balance their own budget, and things on Main Street could get worse.
Throw in aging Baby Boomers and their changing spending habits, and well, let's just say I think retail has head winds coming soon.
The wild card is jobless benefits! Will Uncle Sam allow them to run out this time? I won't belive it until I see it happen. If so, that's a sizeable chunk of money.
Here's what I'm look for as the clue it's beginning
$RLX: Below is the weekly chart of the retail index. You'll notice the index is traveling higher inside converging black trend lines, very much like the overall stock market, so the uptrend is still intact for now.
What stands out to me the most is the low made in late 2008 and a higher low in March 2009, which was just the opposite of the stock market and delivered a nice divergence for the stock market indicating the 2009 low was a real bottom.
The retail index might be a great leading indicator. Therefore, if we are due a recession in retail, then retail stocks should lead that retail recession by moving lower first because the stock market is a discounting mechanism. If the retail sector is going to move lower into a correction of size, that might lead a correction in the over all stock market. That all seems logical to me.
So, what I'm looking for is a break down in price of the retail index. Below the bottom black trend line, and more specifically the major support line in blue would indicate a correction of size in price, and maybe a leading indicator for the stock market in general.
This for the time being is something I'm watching because the retail index has yet to show any real signs of price weakness and it could easily push a little higher in it's topping process.
The retail index is one of several indicators I'm watching as warning signs.
Like I said before, I tend to agree with Flickenger. For me, there's just too big of a disconnect between retail spending in general and the economy on Main Street.
Hope all is well.
J.D. Rosendahl, Rosey