As we enter the second half (which has been talked about seemingly forever), I have been busy decoding the market's secret messages, and one message uncovered cuts right to the heart of the debate on the subpar qualities of this economic recovery.
Similar to what Jim discussed on "Mad Money" earlier in the week on CNBC, it's vital to have conviction, a view of the world, if you will, and invest around that baseline. My baseline that the average American consumer resembles a car that has a couple broken parts yet continues to run. The car may have the ability to move forward, but underneath the hood, there are problems brewing that could cause it to break down.
Women's apparel is an area in retail that looks to have pulled off to the side of the road to reassess the problems that are causing smoke to emit from the radiator.
Ever since the CEO of Urban Outfitters (URBN) said that the Anthropologie division (which caters to women aged 28 to 45 years) had waning sales late in the second quarter, I have been on the lookout for confirmation of an emerging down cycle in women's apparel. Why? Well, I recall noticeable peaks in pure-play women's apparel stocks prior to of the meltdown in 2008. Recession predictors?
- Ann Taylor (ANN) peaked in November 2006, only to lose 20% to August 2007. The S&P 500 during that period rose 7.9%.
- Chico's (CHS) peaked in June 2007, only to lose 41% to August 2007. The S&P 500 during that period declined 4.1%.
- Maidenform (MFB) peaked in April 2007, only to lose 26% to August 2007. The S&P 500 during that period declined 4.1%.
- Economic notes: The National Bureau of Economic Research has stated that the Great Recession began in December 2007. The S&P 500 peaked for the prior cycle at an intraday high of 1,576 on October 12, 2007.
In hindsight, women realized that household debt was becoming a pressing issue and decided to rein in personal spending, focusing instead on the necessities.
Gap (GPS) confirmed that something is up in the women's apparel market, noting that there has been a "down cycle." Obviously, this information interests me, given the lessons learned in 2007 and 2008 with regards to picking stocks. This time around, I don't think household debt is the largest issue, the de-leveraging process has been unfolding consistently. Instead, there is simply not enough income to go around after paying for goods and services that are significantly higher in price than one year earlier.
Subpar economic recovery is written all over the place here; stretched household budgets, stagnant employment growth for women, and the typical response by wives and mothers to refrain on wants and focus on family needs as the economic environment turns volatile.
Female Unemployment Rates
|Class (years old)||July 2010||March 2011||April 2011||May 2011||June 2011||July 2011|
|16 to 19||23.2%||22.7%||21.8%||21.3%||21.6%||22.7%|
|20 to 24||12.7%||13.5%||13.7%||13.6%||13.4%||13.2%|
|25 to 34||7.7%||7.5%||7.7%||7.6%||7.8%||7.5%|
|55 and over||6.9%||5.8%||5.4%||6.0%||6.3%||7.3%|