Quick Stats and Data Snapshots

NAHB housing data came in just shy of experts assessments but the Atlanta reading on Q2 GDP has once again bounced a bit higher, continuing the “ugly Q1’s” of recent years and then bounces back as the year unfolds.

As it relates to housing, one cannot deny the upcoming pressures building as millions of Gen Y kids will indeed eventually move out and build households of their own.

First Retail Sales – Then an Earnings Summary

Let’s face it – last week was Amazon’s week and a retailers nightmare. The kids went online – and steadily brought their slow-learning parents with them it appears. A breakdown tells the tale:

[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][In the report, the acronym GAFO is defined as “General Merchandise, Apparel and Accessories, Furniture and Other Sales”. It covers sales at stores that sell merchandise normally sold in department stores, such as: general merchandise stores; clothing and clothing accessories stores; furniture and home furnishings stores; electronics and appliance stores; sporting goods, hobby, book, and music stores; office supplies, stationery, and gift stores.]

Shopping online hit a record in March, adding up to 27.0% of the sum of GAFO and e-shopping. Dr. Ed reminds us that this is up significantly from 10 years ago when it was a more manageable 15.50%. Over that same 10 years, overall GAFO is up just 14.9%, while the online shopping reading is up 131.4%. A smaller time-frame: over the past 12 months through March, GAFO is up just 0.3%, while e-shopping is up 12.1%.

Using the inflation-adjusted readings, in the three months through April, real retail sales have risen at an annual pace of 6.2% which is the best pace since March 2015. If one excludes building materials (they are included in the residential component of GDP and should not be double-counted), real retail sales rose 5.8% over this period.

This, as core retail sales (excluding autos, gasoline, and food services) increased 9.0%, again being the best pace since March 2015.

The net result?

It would be a mistake to assume the consumer is dead just because they shifted where they shop. Retailers will need to increase their attention to experiences in the malls – as some are already adhering too.

Earnings Season – Steady Current Underneath?

When I was a kid sailing ocean races miles and miles away from any sight of shore, I learned that often the surface of the water would be different from the current underneath. Misreading it carried strong consequences.

I think if one looks at the data overall, we could argue that is the current snapshot of earnings. There is the appearance of rough water and chop on the surface – but a look underneath would suggest to most that the underlying current is much more steady than what is being covered in the press.

While more detail is posted inside for those who like reading, I have taken the liberty of posting a summary snapshot for you here on Revenues, Earnings and Margins:

A longer-term view of these cumulative data points can be seen in these charts from Dr. Ed:

Stepping back from the churn, it becomes more and more apparent that the stall we are suffering through is being driven by events which are already being remedied. Energy will stabilize. The round-trip of the worst earnings results will be forthcoming.

Fiscal policies must begin to be understood as some of the more significant remaining culprits to the masses’ current “cloudy view”.

Even so, we must still wrestle through the Wall Street dance. Goldman came out with their 6 reasons for selling in May. Odd, as we are already half-way through. I chuckle as I read:

Some Positives….Sentiment Upturn

My take remains that a summer swoon this year, while spooky short-term, sets the stage for the same as we have seen in the last few summer swoons – an opportunity.

Meanwhile, consumers continue to be rattled at times but more likely by short-term media surroundings than anything particularly troubling long-term.

We all saw the latest data: Consumer confidence rose for the first time in five months in mid-May to its highest reading in nearly a year….but was only covered quickly in the headlines.

The University of Michigan’s Consumer Sentiment Index rebounded to 95.8 this month after falling from 92.6 at the end of 2015 to a seven-month low of 89.0 in April.

We would argue that this period coincided with the massive coverage of “the worst start to the markets in 80 years”.

Seems the expectations component accounted for most of the gain in the latest reading, rebounding from a 19-month low of 77.6 to an 11-month high of 87.5.

The present situation index advanced for the second month from 105.6 to 108.6 (itself an 11-month high as well) over the two-month period.

The bottom line: there is plenty of income and savings to have a wave of nice spending patterns in the Q2 and Q3 data – likely a surprise to most. Summer vacations are around the corner as we stare into the doldrums in a few weeks.

In Closing

The pause we have been trudging through in markets for 19 months now is working. Refitting is unfolding. Corporate inefficiencies are the new rage. Confusion reigns and bearishness is king of the hill.

The latest sentiment data is nearing low bullish readings not seen since the lows of 2009 – an incredible feat – and especially valuable for long-term investors with the required patience and discipline as we work through the last quarters of this lengthy pause.

All continuing signs of the Barbell Economy unfolding ahead.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]