Dec. 23 (Bloomberg) -- A slackening in Asian air cargo bound for the U.S. may signal that American consumers are slowing purchases of electronics and appliances after a post-recession spending spree.
Shipments from Asia to the U.S. rose at a 15 percent pace in October, less than half the January-to-June rate, the International Air Transport Association said Dec. 14. Electronics and appliances make up about half of Asian imports shipped by air. Global air-cargo demand growth may slow to 5.5 percent next year from 18.5 percent this year, IATA said.
Cooling sales of discretionary items such as flat-screen TVs and personal computers might indicate that household purchases won’t expand as fast as many economists are assuming, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Retailers such as Best Buy Co. and Whirlpool Corp. have said consumers, whose spending accounts for 70 percent of the U.S. economy, are shying away from purchases of big-ticket items.
“Asia freight volumes to the U.S. are slowing, and this raises the risks to the outlook for electronic retail sales here,” said Rupkey. “There may be a little bit of caution still given the unemployment rate is nearly 10 percent and the consumer is trying to get the debt-laden balance sheets back under control.”
Consumer spending may expand 3 percent next year, Rupkey forecasts, less than the 4 percent projected by Neal Soss, chief economist at Credit Suisse Holdings USA Inc. in New York, and Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. Consumer spending gains have averaged 2.9 percent in the past 15 years.
Investors may have to be more selective in their choice of consumer stocks in 2011 after the companies outperformed the past two years, said Colin McGranahan, a retail analyst at Sanford C. Bernstein & Co. in New York.
The Standard & Poor’s Retail exchange-traded fund, which includes Best Buy and Fort Worth, Texas-based RadioShack Corp., has risen 136 percent since the start of 2009, compared with 39 percent for the S&P 500 exchange-traded fund.
“Selectivity is key,” said McGranahan, who recommends shares of office-supplies retailer Staples Inc., based in Framingham, Massachusetts, and Minneapolis-based discount retailer Target Corp. “The group overall will struggle to outperform. The stocks fully embed the recovery. The opportunity for outperformance is far more limited.”
Sales of electronics fell 0.6 percent last month for a second straight decline, Commerce Department figures showed Dec. 14. Overall, retail sales gained 0.8 percent in November after a 1.7 percent jump in October.
Electronics and appliances are bellwethers of consumer spending because they are usually discretionary purchases and can be postponed, said Britt Beemer, chief executive of America’s Research Group, a retail industry tracking group in Charleston, South Carolina.
“Everyone’s budget is tight,” he said.
Rupkey says sales of electronics may slow after rising 3.7 percent over a year earlier through November on a three-month moving-average basis. Sales growth of electronics and appliances averaged 2.4 percent over the past 10 years.
“Retail sales have been on fire for electronics goods the last few months and may be cooling a little,” he said.
Soss and Paulsen say they are confident that a payroll-tax cut and higher employment will boost spending above its long-term average.
“The job gains, mediocre though they have been, the income gains, the low interest rates and now the prospect of a significant fiscal stimulus have gotten the consumer back in the game,” Soss said.
Growth will be “led by the consumer,” Paulsen said, as private payroll gains pick up next year.
Freight tonnage growth in Asia is giving way to more sustainable growth, said Andrew Herdman, director-general of the Association of Asia Pacific Airlines.
“An extraordinarily strong recovery” has boosted Asian cargo, Herdman said in a Bloomberg Television interview Nov. 25. “We don’t see signs of double-dip” recession. “We are going to see a sustained recovery. That makes us optimistic about next year.”
International Priority freight pounds increased 29 percent at FedEx Corp. in the three months through November, down from gains of about 41 and 68 percent the previous two quarters, the second-largest U.S. package-shipping company said Dec. 16.
“Overall, the global economic picture is increasingly more positive as recovery continues at a steady pace,” Chief Executive Officer Fred Smith said on a conference call with analysts, while “Asia is moderating toward more normal high growth rates.”
UTI Worldwide Inc., an international freight-forwarding and logistics company, said Dec. 2 that fourth-quarter volumes in air freight would be about the same as last year after a 20 percent increase in the third quarter from a year earlier.
“The trend has clearly been a growth rate deceleration,” said Benjamin Hartford, transportation analyst at Milwaukee-based Robert W. Baird & Co. Inc.
Best Buy, based in Richfield, Minnesota, cut its annual profit forecast to $3.20 to $3.40 a share, from $3.55 to $3.70, because of weaker-than-expected sales of televisions, computers and video-game software.
“Our top-line growth assumptions earlier in the year turned out to be too aggressive based on the environment that we see for demand, specifically in the TV industry and the computing industry overall,” said James Muehlbauer, chief financial officer, in a conference call with investors.
Best Buy’s shortfall resulted in part from not being “aggressive enough on pricing,” said David Strasser, an analyst at Janney Capital Markets in New York.
Competitor hhgregg Inc., based in Indianapolis, lowered its annual earnings estimate in November to $1.30 to $1.45 a share from $1.35 to $1.45 a share.
“Clearly, there continue to be some structural challenges in the overall economy that are creating headwinds in our industry,” said Dennis May, chief executive officer, in a Nov. 9 conference call with investors. “However, we are also firmly believe that the consumer is both healthier and more opportunistic than they were a few quarters ago.”
Whirlpool said Oct. 27 that demand was moderating in North America. The Benton Harbor, Michigan-based company cut its 2010 forecast for North American industry shipments to 3 percent from 5 percent.
“We do think we’ll see a return to what I call normal demand levels in the developed markets in the U.S. and Europe,” said Jeff Fettig, chairman and chief executive officer, in at an analyst meeting with investors.
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