MorningWord 6/23/15: Consumer Reports

by Dan June 23, 2015 10:00 am • Commentary

In case you missed it, recent U.S. housing data is pointing to a recovery, from this morning’s Housing Showing Signs of Recovering:

Existing home sales rose at their strongest pace in five-and-a-half years in May, suggesting that the housing recovery is gathering steam after stalling last year.


First-time buyers increased to 32% of all existing-home purchasers from 27% at the same time last year, the National Association of Realtors said Monday. That compares to the historic norm of first-time buyers accounting for roughly 40% of the market.

The fact that people are excited that the May print of first time buyers was within 20% below the historic norm shows just how deep the housing correction was and just how long it takes to recover from a real estate driven financial crisis. We talk about other aspects of our economy starting to approach (or in some case surpassing) pre-crisis levels but for some aspects of housing we’re still along way from even historical averages, much less pre-crisis levels. It also speaks to the continuing difficulty to access loans that came from both new regulations and the reluctance of banks, although this continues to slowly improve the farther the crisis gets in the rear view mirror.

What we are really talking about here is the health and recovery of the U.S. consumer and it’s been slow going. While there is plenty of data on the employment front that shows jobs near pre-crisis levels, we have yet to see the wage inflation and participation rate (much of this is generational demographics) that is necessary to finally put the crisis in the past.

But there are other ways to take gander at the health of the American consumer. For instance, the sales growth of large US retailers is still (at best) in the middle single digits, and their ability to turn a profit on said growth, without buybacks would be flat for the following companies (to name a few) COST, LOW, WMT and BBBY. Home Depot is a notable exception.

One piece of data obviously doesn’t make a recovery.  While investors want to get bulled up on homebuilders and related retailers and suppliers, I am going to keep my eye on the waning momentum in retailers. Yesterday we put on a short biased trade in TJX, read here, and COST is on our radar.