ANALYST REACTIONS TO THE WEAKER THAN EXPECTED RETAIL SALES

From the WSJ:

• The 0.3% m/m decline in retail sales in December is a reminder that consumers still aren’t buying into the economic recovery. Without a more significant acceleration in consumption growth that recovery is ultimately doomed to disappoint. – Paul Ashworth, Capital Economics
• On balance in spite of the disappointing sales in December the trajectory of total consumer spending on a quarter over quarter basis is improving…The disappointment with holiday sales in December seems to be more a result of a shift in spending patterns rather than another poor Christmas shopping season. Sales in October and November rose very robustly (1.2%, and 1.8%, respectively). It seems as though concerned retailers began offering price discounts on merchandise earlier than normal and holiday shoppers took advantage of it. Sales at generally merchandisers increased 0.7% and 0.5% in the previous two months and then dropped 0.8% in December. Since merchants choose to be very conservative in their inventory stocking for the holiday period, the large discounts that encourage sales in January will likely be much smaller than normal. – Brian Fabbri, BNP Paribas
• Weaker than expected report. While much of the downside surprise in December sales was offset by an upward revision to November, the result is no change to our expectation for consumption in Q4, but a weaker ramp heading into Q1. –Morgan Stanley
• The pattern of recent economic data matched the weather for most of the country over the last two months of 2009 with a warm November and a cooler than expected December… Apparently, no one wanted to buy a television in the snow. Electronics and appliance store sales fell with a thud by 2.6 percent. But other categories were also weak. Food and beverage store sales dipped by 0.8 percent as did sales at general merchandise stores. Clothing store sales slipped by 0.6 percent, the same for sales at restaurants and bars. Despite a 2.8 percent increase in unit auto sales for the month of December, retail sales for autos fell by 0.2 percent, suggesting deeper discounting and a shift to smaller cars. – PNC
• Today’s retail sales report suggests slighter softer consumption growth in Q4 of 1.8% compared with our baseline forecast of 2.0%. We are still tracking about 5% for Q4 GDP growth. While today’s report only has a modest effect on Q4 GDP because the weakness in December was partly offset by stronger November data, it does mean a more feeble Q1 kick off. As such, we believe there are downside risks to our forecast for Q1 GDP to increase 5%. – Michelle Meyer, Barclays Capital Research
• We would advise against looking at either the November or the December results for retail sales in isolation. The combination of an increased emphasis on “Black Friday” and “Cyber Monday” sales in November and lousy weather in late December likely played havoc with spending patterns relative to past norms and thus made the seasonal adjustment task a more vague exercise than usual. Still, with fundamentals facing the consumer still terrible…reality is probably closer to the December outcome than November’s result. –Joshua Shapiro, MFR, Inc.
• Overall, despite the surprisingly weak headline print in December, the performance of retail sales in the last quarter of 2009 suggests some significant positive momentum on consumer spending and may augur well for Q4 GDP. Notwithstanding this, with the U.S. labour market remaining quite weak and consumer credit continuing to decline, we expected consumer spending growth in the coming months to be relatively soft. –Millan L. B. Mulraine, TD Securities