Will December Mirror November Sales? - Analyst Blog

November retail sales data are out amid an economy which has been exposed to a number of mixed events. On one hand, the Labor Department indicated that initial jobless claims have fallen 29,000 to 343,000; on the other, consumer sentiment is showing a negative inclination, largely due to the looming fiscal cliff. Again, the unemployment rate declined to 7.7% in November from 7.9% in October, but it remains well above the Federal’s long-term target of 5.2% to 6.0%.

In such a scenario, November retail sales data revealed an upswing from October. According to the data released by the U.S. Department of Commerce, total retail and food services sales (including non-general merchandise categories such as automobiles, gasoline stations and restaurants) jumped 0.3% in November, rebounding from a decline of an equivalent percentage in October.

Hurricane Sandy did enough to derail November sales, but a modestly improving job market, falling gasoline prices and a resurging housing market favorably impacted the holiday shopping season, with consumer spending picking some momentum. Data compiled by National Retail Federation (NRF), the nation's largest retail trade group, suggested that November retail sales (which exclude automobiles, gas stations and restaurants) inched up 0.8% from October.

Consequently, NRF reiterated its holiday sales forecast of 4.1% jump in November and December period to $586.1 billion, which is short of the 5.6% growth registered last year. However, it is above the 10-year average sales increment of 3.5%.

Sandy dampened the November comparable-store sales performance of Target Corporation (TGT), Macy’s Inc. (M), Kohl’s Corporation (KSS) and Nordstrom Inc. (JWN), all of which missed the forecasts. However, Costco Wholesale Corporation (COST) and Limited Brands Inc. (LTD) performed above expectations. (Also read: Sandy Derails November Comps).

Home improvement retailers, such as Lowe’s Companies Inc. (LOW) and Home Depot Inc. (HD), were the beneficiaries when Hurricane Sandy hit the U.S. East Coast. Customers rushed to get hold of flashlights, generators and batteries before the storm and came back to buy materials for repairing purposes after Hurricane Sandy wreaked havoc.

The question now is, “Will December retail sales mirror or surpass November’s performance?” The answer is very tough at this juncture, as the economy is surrounded by slew of events, the latest being the Fed’s announcement to spend $45 billion to buy long-term treasuries in addition to the $40 billion per month in mortgage-backed bonds. The Fed also said that it will continue to maintain short-term interest rate at near zero levels till the U.S. unemployment rate drops below 6.5%.

However, this encouraging announcement was not enough to negate the Fiscal Cliff of $600 billion in tax increases and spending cuts. Republicans and Democrats continue to wrangle about ways to find a solution. Analysts are thus projecting soft economic growth as companies shy away from making big investments until a negotiation is reached. The austerity measures and fear of impending tax hike are creating some panic among consumers.

Thus, we believe that retailers have to cover this holiday season with compelling pricing, promotional strategies and new products launches to attract shoppers. Despite lingering concerns, we hope the arrival of Christmas guides demand higher and shed consumers’ apprehension.

COSTCO WHOLE CP (COST): Free Stock Analysis Report

HOME DEPOT (HD): Free Stock Analysis Report

NORDSTROM INC (JWN): Free Stock Analysis Report

KOHLS CORP (KSS): Free Stock Analysis Report

LOWES COS (LOW): Free Stock Analysis Report

LIMITED BRANDS (LTD): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

TARGET CORP (TGT): Free Stock Analysis Report

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