There is a growing divergence between the state of consumer spending as indicated by the Bureau of Economic Analysis in the gross domestic product report and that being evidenced in retail sales figures and consumer confidence reports.
The advance estimate for second-quarter GDP as released by the BEA earlier today indicated a pronounced rebound in overall economic activity, personal incomes, and personal income expenditures for the second quarter versus the first quarter.
In the aggregate, annualized GDP growth in the second quarter was 2.3% versus 0.6% in the first quarter. Personal incomes increased by $145 billion in the second quarter versus $118.9 billion in the first quarter, and personal outlays rose by $161.9 billion in second quarter versus a decrease of $10.3 billion in the first quarter.
On the surface, these all appear to be indicative of a rebound in economic activity in a second quarter that was much better than the first quarter, although the results still were slightly below consensus expectations. The expectations also increased during the quarter, as best evidenced by the steadily rising forecast by the Atlanta Fed's GDPNow system throughout the quarter.
The above also provides anecdotal support to expectations of a Fed rate hike in September, although most of those expressing that expectation appear to be doing so primarily because the Fed is continuing to maintain its intention to do so, regardless of what economic activity indicates its decision would be on a historical basis.
And that brings me to retail sales and consumer confidence.
The retail sales figures as tracked by the Johnson Rebook Index have been in steady decline all year, with the last annualized tally from just two days ago indicating that retail sales are growing at just 1%.
Not only does this conflict with the rebound in personal outlays in the second quarter from the first quarter as indicated by the BEA data, but it also indicates retail sales so far in the third quarter are decelerating from the second quarter.
This is also reflected in the two most recently released consumer confidence indices, the Bloomberg Consumer Comfort Index and the Conference Board Consumer Confidence Index.
The Bloomberg Consumer Comfort Index, released this morning, fell to its lowest level in five months and has been in a negative channel since the beginning of the year, which coincides with the Redbook Index.
The Conference Board Consumer Confidence Index, released two days ago, also corroborates the Comfort Index.
These trends also appear to be evidenced by the performance of the stocks in the broad consumer space that had performed best prior to the beginning of this year. I'm referring specifically to the unbranded apparel manufacturers and retailers, which I last addressed in the column, "Cheaper Clothing Is Winning the Branding Battle."
The stellar returns that preceded this year have not been evidenced since the start of this year.
The TJX Companies (TJX) is up year to date by only 1.2%. Likewise, Ross Stores (ROST) is up 11%, Burlington Stores (BURL) up 16%, Costco (COST) up 2.8% and Target (TGT) up 8.4%.
The two outliers in this group have been Wal-Mart Stores (WMT), which is down 15.5% year to date, and Amazon (AMZN), which has climbed 72.6%.
The next logical issue to consider is whether the deceleration in the positive performance of the unbranded retailers is the result of consumers shifting back to the higher-end branded retailers, which would coincide with the BEA personal consumption expenditures.
The problem with that logic, however, is that the performance of these stocks in the aggregate is even worse than the unbranded retailers.
L Brands (LB) is down 5.5% year to date. Likewise, Abercrombie & Fitch (ANF) is down 31%, Aéropostale (ARO) down 38%, The Gap (GPS) down 15%, Ascena Retail Group (ASNA) down 2%, Urban Outfitters (URBN) down 6%, Chico's FAS (CHS) down 6%, Ralph Lauren (RL) down 31%, and PVH Corp. (PVH) down 10%.
A few have performed very well, but not enough to align with the GDP report.
American Eagle Outfitters (AEO) is up 25% year to date, Express (EXPR) is up 29%, and ANN INC. (ANN) is up 25%.
When viewed in total, the performance of the unbranded retailers, the branded retailers, the Bloomberg Comfort Index, the Conference Board Confidence Index and the Johnson Redbook Index all are indicating a consumer segment that it decelerating and are not consistent with the second-quarter GDP report.
At this point I'm not sure why this is, but it may have something to do with new methodologies being used by the BEA concerning seasonality adjustments. I still have to get into the report at a granular level to ascertain what the deal is and will write about it as soon as I get that done.
For now, though, I would advise being very cautious concerning expectations for further upward revisions to second-quarter GDP. It appears more likely to me that the next release on Aug. 27 will be down rather than up.
