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Retail Sales — It's Not Pretty Out There

15 November 2012 in Trading Ideas

Whether you’re reading the headlines or the fine print, the retail sector outlook is not for the faint of heart.

Early Wednesday, the Commerce Department said US retail sales fell 0.3% in October, marking the first sequential decline since June and the worst miss of expectations since May 2010.

Hurricane Sandy, you say. Well, that’s not all of it. In fact, the Commerce Department said it really can’t measure the effect of the storm on the affected region’s retail sales because of the way it surveys businesses. Plus, the report found that the hurricane had both positive and negative effects on retail sales data. While some firms saw a drop in sales due to permanent or temporary store closures or reduced business due to damage, fewer customers or a lack of employees, other businesses reported sales increases due to significant sales of supplies in the affected areas and evacuees buying retail and food services.

Some firms, like carmakers General Motors (GM) and Ford (F), maintained the storm affected sales and they expected numbers to rebound, but many analysts thought the decline in discretionary spending seen last month suggests a broader problem.

“When consumers are cautious they tend to spend more on staples than discretionary items, and that’s exactly what happened this month,” Neil Dutta, head of US economics at Renaissance Macro Research told Bloomberg. “The broad story is that consumers remain cautious.”

The Hot Retail motif is down 6.5% in the past month.

And in the adding-insult-to-injury department, the Financial Times reported earlier this week that retailers were scrambling to retrieve thousands of shipping containers diverted from the New York area during Hurricane Sandy as they seek to avoid product shortages in the runup to the holiday shopping season.

For retailers, one could argue that the only thing worse than a cautious consumer is not being able to supply the customers that actually show up.

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