This week's string of economic data showed modest signs of consumer strength, some obvious and some deeper within the numbers, which bodes well for the holiday shopping season.
Consumer Confidence rose to 72.2 in October from 68.4 in September; the strongest level since February 2008. Looking beneath the headline, economists at RBS cited in a research note:
"The results confirmed the improvement suggested by other October measures of consumer confidence. Though the fiscal cliff appears to be weighing on business sentiment, households have thus far been more resilient. The underlying details of the report were also generally favorable. On net, consumers' assessment of the current labor market ("jobs plentiful" less "jobs hard to get") improved by 3.5 points to -29.1, the best since November 2008. Their view of current business conditions ("good" less "bad") rose by 1.9 points to -16.5, the best since April 2008."
Data from the retailers themselves confirms the improved sentiment. October is typically a breather month for spending, falling in between back-to-school and the holiday shopping seasons. Same-store sales, excluding Wal-Mart (WMT) rose 4.7% in October versus estimates of 4.3%, with luxury and discount stores posting stronger gains. Economist Chris Christopher of IHS Global Insight called the numbers a "positive signal for holiday sales."
In a client note Christopher states:
"The recent news on the consumer front has been favorable. The unemployment rate has fallen below 8.0%, personal income gains have been favorable, the housing marketing is looking brighter, pump prices started falling, and consumer mood is elevated. This is a good report. It serves as a positive signal that the holiday retail sales season is looking significantly brighter. We expect holiday retail sales to rise 4.5% above last year, not as strong as the past couple of years, but a solid showing."
Here are some of the hits and misses on October sales:
Nordstrom (JWN) crushed estimates, rising 9.8% versus 6% expected.
TJX Cos. (TJX) same-store sales rose 7% versus 4.3% expected. The company also raised its third-quarter and full-year earnings guidance.
Kohls (KSS) sales rose 3.3% versus 1.1% expected, and the retailer announced it will no longer report sales on a monthly.
Gap (GPS) sales missed, posting a 4% gain versus 5.1% expected.
Macy's (M) sales increased 4.1% versus the 3.1% estimate and boosted sales guidance for the second-half. CEO Terry Lundgren said in a statement "We are feeling confident about our prospects for the upcoming holiday season and have increased our sales guidance for the fall season, despite the interruption caused by Hurricane Sandy."
Keep in mind, retailers closed their books before Hurricane Sandy slammed the East coast.
"Many retailers didn't even acknowledge the storm (well wishes, financial impact) in press releases or pre-recorded conference calls. But, from those that did believe in the sharing is caring mantra, I was able to determine Sandy is being viewed as an "interruption" in a sales trend that has been largely running above consensus and internal plans year to date," says Brian Sozzi, chief equities analyst at NBG Productions. "To me, it reflects the normal bullishness of retail executives for they are essentially saying unplanned for Sandy expenses will be quickly forgotten by consumers, and that "lost" sales will return in short order. Further, companies have maintained bullish holiday season projections, signaling no longer term impact from Sandy which seems a little far-fetched."