So, the Housing Recession Is Contained?
That's the conventional wisdom, but recent reports from retailers might suggest otherwise. Early in June, Bed Bath & Beyond issued a profit warning. BB&B's chief executive, Steven Temares, said: "Based upon what we have experienced and has been reported by others, the overall retailing environment, especially sales of merchandise related to the home, has been challenging" (emphasis added). Last week, big-box retailers Best Buy and Circuit City reported softer-than-expected earnings and either revised lower 2008 earnings expectations (Best Buy) or withdrew any guidance (Circuit City). Both retailers noted slower sales of high-margin products such as flat-screen televisions. Today, West Marine, the country's largest retailer of boating supplies and accessories and a recipient of a large part of my paycheck, revised lower its 2007 sales and earnings. Peter Harris, West Marine's chief executive officer, stated: "As we move through the peak season, boating activity throughout the country has not shown signs of recovery, and revenues have been disappointing ... Broadly, sales of higher-priced discretionary items, such as electronics, have been weak, and in-store traffic levels, which we believe reflect boat usage, have been lower than expected." To a large degree, all of these retailers sell consumer discretionary items rather than consumer staples. It is probably no coincidence that the consumer discretionary sub-index of the S&P 500 stock index has underperformed the total index by about 400 basis points this year. We can't help but wonder if the slowdown in nonfarm employment growth (see Chart 1), in large part due to the housing recession, and the decline in house prices (see Chart 2), which is reducing the amount of home equity available for withdrawal, are not beginning to slow the growth in consumer spending. Just a thought.
Chart 1
Chart 2
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Author: Paul Kasriel
Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.
Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.
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