Redbook Same-Store Sales Growth Falls

In the week of November 9th, yearly same-store sales growth in the Redbook report fell from 5.5% to 5%. That’s exactly in between the prior 2 weeks which had growth of 4.5% and 5.5%. It doesn’t seem like November has been a great month so far. But keep in mind that consumers are saving up for Black Friday which is later this year than last year. I’m guessing that the growth rate will be weak when last year’s Black Friday is lapped. 

Last year had a strong Black Friday, but despite the extra week between Black Friday and Christmas, sales growth disappointed. It started to lag in December. The extra weak didn’t help because the stock market plummeted 20%. There is less time to shop this year. But if consumers have more money because they have a higher savings rate and more people have jobs, then they will find ways to spend. It’s easier than ever to shop online.

With the Redbook data, we’re discussing the beginning of November, but the October retail sales report hasn’t been released yet. It will come out this Friday. Expectations are for a rebound in monthly growth as the comp is easy. Headline monthly retail sales growth is expected to be 0.2% which is better than the 0.3% decline in the previous month. Retail sales less autos is expected to be 0.4%. 

Autos being a drag on retail sales makes sense because the motor vehicle sales report was weak. Personally, I expect an improvement in online sales growth as it took a step back in September. The control group is expected to see growth improve from 0% to 0.4%. We will be able to deflate retail sales growth using the CPI report that comes out on Wednesday. Yearly core and headline CPI are expected to show no change. Fed is in fine shape as it doesn’t plan to cut or hike rates anytime soon.  

Markit Business Confidence Falls

Markit US business outlook weakened considerably in October. This report isn’t updated every month; it was last updated in June. It explains how the latest monthly Markit report showed a slight improvement in expectations and this one showed a decent sized decline. 

Specifically, the index is the percentage of companies who expect an increase in business activity in the next year minus the percentage who expect less activity. The index fell 6 points to 10%. It’s certainly not a disaster or recessionary that 10% more firms expect improvement. But we look at data on a relative basis.

Relatively, this report was weak as it was the weakest in 3 years and the 3rd weakest of this expansion. In the prior slowdown, it appears a report had a reading of 4%. We’ve seen many Markit readings show the worst results of this cycle, so at least this report isn’t that bad. One of the reasons cited for this weakness was trade policy uncertainty. 

As you can see from the chart below, the trade policy uncertainty index has recently declined, so it’s possible the next Markit report will show an improvement. Other reasons for the weakness include worries about the 2020 election and troubles finding skilled workers. 

It would be unfortunate if the 2020 election replaced the trade war as a negative catalyst for business confidence. The election will probably hurt small business confidence because they tend to be biased towards Republicans.

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The U.S.’s reading of 10% was below that of developed markets which had a reading of 12% and the global economy which was at 14%. This implies emerging market businesses exhibited more confidence than firms in developed economies. 

Net percentage of U.S. firms expecting to hire more workers fell to 5% which is the worst reading since February 2016. And net percentage expecting an increase in investment fell 4 points to 6% which is in line with developed markets. 

Net firms expecting nonemployment costs to increase was 4% which was the weakest reading since February 2017. The net percentage expecting prices received to rise was 17% for manufacturing firms (up from 14%) and 3% for services firms. And net percentage expecting higher profits fell from 31% last year to just 8%.

Small Business Confidence Improves Slightly

In October small business confidence improved slightly. The NFIB index increased from 101.8 to 102.4 which beat estimates for 102. As you can see in the chart below, it’s below its cycle peak, but it’s relatively strong. Before the past 3 recessions, it fell to 98.3, 98.3, and 94.4. It’s still a few points above those markers. 

Every indicator in this report improved except for earnings trends and current job openings. Just like the Markit report, earnings expectations were weak. The net percentage expecting earnings to increase fell 5 points to -8%.

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Net percentage with higher job openings fell 1 point to 34%. And net percentage with plans to make capital outlays rose 2 points to 29%. The biggest increases were in inventories. Indexes for plans to increase inventories and current inventory rose 3 and 2 points to 5% and -4%. 

Ppercentage of small businesses with at least 1 unfilled position fell from the high 30s to the mid-30s this year. That’s similar to the decrease in job openings. However, there is still a problem with finding qualified workers like the Markit report showed. 88% of those hiring or trying to hire workers reported few or no qualified applicants for positions they are trying to fill.

Conclusion

Redbook same-store sales report was slightly weaker than I expected. Investors are expecting the October retail sales report to show weakness in motor vehicle & parts and strength in non-store sales. 

Markit report showed business confidence fell in October to the 3rd worst of this expansion. Small business confidence improved slightly in October. One of the only weak points were expectations for earnings. That’s kind of an important factor, so I wouldn’t say this was a great report. Even so, it’s better than the reports before the last 3 recessions.