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Dumb Husbands Can Help Economy or at Least Macy’s Shares

Aug. 13 (Bloomberg) -- It’s well known, at least among certain New Jersey writers who’ve been chastised by their wives, that only a dummy shops at Macy’s without a coupon offering a big discount.

In fact a Google search for “Macy’s coupon” yields more than 57,000 results including many varieties of the “Friends & Family” program that offers 25 percent off. A “Dummy Husband” program would surely be popular, too, yet sadly there’s no trace of one on Google.

There’s a big discount on Macy’s Inc. stock today too, and you can at least partially blame all those promotions for hurting profit margins. With Friends & Family like these, who needs...

Make no mistake, U.S. consumers and the stocks that rely on them are in a bit of a funk regardless of 4 percent economic growth last quarter, unemployment near a six-year low and marvels of modern retailing like these new playthings called Juggle Bubbles that, believe it or not, do not pop. You read that right: bubbles that DO. NOT. POP. With any luck, the world’s central banks are dispatching researchers to Juggle Bubble headquarters post haste to figure out how this technology can be repurposed for financial markets.

Anyway, back to the consumer, that enigmatic creature whose fickle and mercurial ways we struggle so hard to understand. Commerce Department data showed retail sales were little changed in July, the worst performance in six months and trailing the median economist forecast for a 0.2 percent gain.

Worst Performance

Looking at the stock market: Retailers in the S&P 500 are down 3.4 percent as a group this year and makers of consumer durable goods and apparel are more than 5 percent lower for the worst declines among 24 groups. These are the same groups that powered the market’s escape from the darkest depths of Mordor in 2009, with gains of more than 300 percent through the end of last year.

A great number of .pdf files have flown off Wall Street in an effort to diagnose the ills of the consumer and the ramifications for the economy and the shares of the companies dependent on them, so here are some of the highlights.

Wage Growth

Piper Jaffray & Co. places much of the blame on Uncle Sam, estimating that higher taxes accounted for a $128 billion decrease in personal income in 2013 alone. That, they wrote, translates into a 130 basis point, or 1.3 percentage point, drag on retail sales growth. Also, the Piper analysts believe people who used to kill time by wandering around the malls are now killing time by wandering around the web and retailers need to make it easier to buy stuff on their phones.

Sterne Agee & Leach Inc.’s chief economist Lindsey Piegza said it all boils down to the job market, which is doing better but still not strong enough to fuel the type of wage growth that would benefit retailers.

As for the outlook for the stocks, Barclays Plc’s new U.S. strategy chief Jonathan Glionna chimed in with a market weight, the equivalent of hold, rating on consumer-discretionary stocks. He points out that while the group has the highest forward price-to-earnings ratio in the S&P 500, it usually trades at a richer valuation than the index and the current premium is not out of whack, especially given projections for earnings growth in 2015 (16 percent, according to Bloomberg’s tally of estimates, the second-strongest among the 10 main groups.)

As is often the case, consumer-discretionary companies are more of a pick-em than a macro play, with almost 95 percentage points currently separating the best-performing stock of the year from the worst, the highest dispersion among the 10 main industries in the S&P 500.

Yet the industry is undoubtedly one of the most important canaries in the macro coalmine, and today’s retail sales report has many pundits taking another look at their economic growth projections. To summarize Wall Street’s take, in order to thrive the consumer industries need better jobs and lower taxes. And maybe some more dumb husbands.

To contact the reporter on this story: Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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