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Retail First Sign of the Holiday Season Activity A Positive Indicator

Date Posted: September 2, 2017

Container Port Volumes Give a Positive Sign for the Holiday Shopping Season

The first signs as to how this year’s important holiday shoppingseason may go comes from the strength of container volumes at U.S. ports. Container shipments at this time of the year reflect inventory building by retailers in preparation for the holiday season. The National Retail Federation’s (N.R.F.) “Global Port Tracker” reported July imports reached an estimated 1.72 million TEUs (20-foot-long container) or a 5.6% increase over last year.

The N.R.F. looks for August container imports to record the highest volume since the organization started tracking container imports in 2000. In our view, these volume increases give some positive indication of retailer’s expectations for future sales activity during the holiday season. Of course, consumers will provide the ultimate verdict.

Favorable Consumer Income and Confidence Levels for the Holiday Shopping Season

These import numbers suggest the inventory building by retailers reflect their growing confidence in the willingness of consumers to open their wallets. Consumer personal expenditures from those wallets account for nearly 70% of GDP. According to the Wall Street Journal, the Consumer Confidence Index recently reached  its second-highest level since the year 2000.

The results of this index likely reflect the positive employment environment—unemployment rate 4.3%; the increase in nominal average weekly earnings—+2.8% Year over Year (YOY); and low inflation—Consumer Price Index +1.7% YOY. Gasoline prices best capture this benign inflationary environment. Consumers see those low gasoline prices highlighted whenever they pass those well lite price signs standing high above every gas station. Seeing those  relatively low gas prices further reinforce, for consumers, the lack of real everyday inflationary pressures.

Improving Economic Growth Should Create a Positive Environment for the Holidays 

The second estimate of second-quarter GDP growth released this week, showed 3% growth. This increase represented both the fastest quarterly growth since early in 2015 and an increase from
the 2.6% advanced estimate of second-quarter GDP growth released at the end of July. This upward revision principally reflected greater strength in personal consumption and business fixed investment than originally reported in July.

Looking forward, economic forecasts for the third-quarter continue to rise. Recently, the Blue-Chip economists’ consensus forecast, compiled by the Atlanta Fed, trended upward to 2.7%. In addition, economists for two major investment banks, that I track, look for roughly 3% growth in the third-quarter. Moreover, those first signs of positive holiday activity would seem to support future economic strength. If recent and projected GDP growth continues at this level through year-end, it will create a positive economic background for the Fed’s December meeting.

No doubt, the fall-out from hurricane Harvey will initially create speed bumps to short-term economic growth. However, federal disaster aid will likely bump economic growth later this year and early into 2018. In addition, the need to boost federal disaster aid may quicken passage of a higher debt ceiling limit and perhaps contribute to less contentious passage of the FY18 federal budget.

Investment Conclusions

With some exceptions, stocks of retailers declined sharply this year as on-line shopping continued to eat away at the sales of bricks and mortar retailers. No doubt, on-line shopping will continue to gain market share during the holiday season. Nonetheless, with these preliminary signs of optimism for the holidays, there may be life left for in-store shopping.

Beyond year-end, retailers will face continued testing to see whether they can adapt to the forces from on-line competition (see our recent commentary “Clash of the Titans.”)