No “January Effect” For These Two Markets… Beware The Ugly Job Report And Retail Sales Figures
Wednesday, January 7, 2009
by Martin Denholm, Managing Editor, Smart Profits Report
Dear Smart Profits Report Reader,
693,000.
That’s the number of jobs that American companies shed in December - the highest monthly figure since 2001 - according to a pre-Labor Department job report from the ADP Employer Services gauge, which is based on data from 400,000 businesses and 24 million employees’ payroll data.
It’s also a massive 40% higher than the median Bloomberg estimate that calls for 495,000 job losses in December. The Labor Department will release its official report on Friday morning - one that will show the 12th straight month of job losses and push the total for 2008 over the two million mark. It could also send the national unemployment rate to a 15-year high of 7%.
Sadly, there doesn’t appear to be much relief in sight. Joel Prakken, chairman of Macroeconomic Advisers, LLC, which co-authors the ADP report, says the U.S. is still only halfway through the job cull for this recession. Ouch.
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These Retailers Are Set For A Whopper Of A Holiday Hangover
December’s doom-and-gloom in the labor market is likely to spill over to the retail sector, too.
Get set for a fresh round of profit warnings from the nation’s retailers, as they sheepishly report their sales numbers from the critical holiday season. The consensus is that even a widespread round of deep discounts wasn’t enough to lure consumers into stores in large enough volume to make a difference to the bottom line. And with discounts eroding profit margins, that becomes even more profound.
In fact, retail research group Retail Metrics predicts that quarterly profits at the 122 companies it tracks will slump by 19% collectively. Strip out the largest player, Wal-Mart (NYSE: WMT), and that declines swells to 27%.
And the rather dramatically named International Council of Shopping Centers says that 2008 could be the first year since it began tracking sales in 1969 that the U.S. holiday shopping season posts its first sales decline.
Estimates suggest that “same-store” sales (stores open for 12 months or more) could see a 1% decline from December 2007.
As we’ve noted in previous columns, retailers that already specialize in a discount-based business model and/or sell a wide range of products at those lower prices are best positioned to weather the current storm. That includes Wal-Mart, which Thomson-Reuters says could be one of the only stores to post a same-store sales rise in December - around 2.8%.
So although we’ve seen retail stocks rise recently (the S&P Retail Index is up more than 10% over the past month), beware of the “lipstick-on-a-pig” syndrome. Thomson-Reuters says department stores are expected to post a 7.8% sales decline, while other clothing stores are projected to see an 8.4% drop. The worst performers, however, are expected to be children and teen retailers, which are set to record an 11% sales slump.
That wraps things up for today’s edition.
Martin Denholm
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Related Articles:
There’s Value In The Retail Market Yet… If You Just Know Where To Look
Grandma Got Run Over By A Reindeer: How You Can Profit From The Retail Sector Bloodbath This Holiday Season
The Numbers Don’t Lie… Why A Bull Market Will Arrive Sooner Than You Think
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