Yahoo Finance Subdued Retail Sales Could Hurt Consumer Stocks
Why US Consumers Are Hesitant Right Now (Part 5 of 6)
In fact, retail sales are struggling, with February being the third consecutive month in which U.S. retail sales fell. Even after stripping out volatile factors, retail sales were still flat. Bad weather probably played a part, which helps explain why online sales were up over 2% as shoppers bought at the keyboard, but tepid income growth shares a large part of the blame. With U.S. consumer discretionary companies outperforming year-to-date, this sector may be vulnerable if sales do not start to accelerate, particularly as the sector sports the second highest valuation of any of the 10 economic sectors.
Market Realist – The last three months have seen subdued retail sales despite lower oil prices.
The graph above shows the unadjusted YoY (year-over-year) growth in retail sales since the start of 2014. Retail (XRT) sales started growing from March 2014. The growth was sustained through 2014. However, retail sales have contracted in the last three months despite lower oil prices, which increases disposable income.
Bad weather has discouraged people from going to Macy’s (M) or Walmart (WMT). Instead, they’ve resorted to online shopping via companies like Amazon (AMZN).
However, sustained anemic wage growth has kept disposable income stagnant, leading to muted consumption.
This second graph shows how the slope of the average hourly earnings clearly became less steep after the crisis, implying lower wage growth. Since March 2009, earnings have grown at a compound annual rate of 1.9%
Lower retail sales and low wage growth could hurt the consumer-related sector. The consumer staples (XLP)(RXI) sector is trading at ~21x its earnings. The market has factored in a good chunk of the dip in oil prices. If consumption doesn’t increase in the coming months, consumer stocks could take a beating. However, with spring around the corner, this outlook could change.
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