Key to divining holiday sales is four-letter word, j-o-b-s

The Insider

Your Money

October 17, 2004|By BILL BARNHART

ONCE THE GUESSING about the presidential election is over, another contest will begin - betting on holiday retail sales.

It's tempting to forecast sales as a stock market signal. But it's "a mug's game," says Nomura Securities International economist David Resler.

That's because shoppers and retailers in recent years have engaged in an increasingly intense game of brinkmanship - balancing merchandise inventory against hopes for price markdowns as the season progresses.

Here's the dilemma: Investment timing based on holiday sales probably should wait until the end of January, when the dust has settled. But if the stock market rallies in the next 10 weeks, chances of an upbeat shopping season improve.

The basic rule of forecasting holiday sales is widely known.

"Retailing and consumer spending are the function of a four-letter word - jobs," said veteran retailing analyst Kurt Barnard of Retail Forecasting.

From 1992, after the last major recession, year-over-year growth in fourth-quarter retail sales - excluding autos - varied directly with fourth-quarter job growth almost every time.

The biggest sales gain was registered in the fourth quarter of 1999, when the economy added more than a million jobs over the three months. The weakest holiday sales period was in 2001, when 905,000 jobs were lost.

That suggests an immediate cause-and-effect that economists rarely observe between discrete economic indicators. Apparently, consumers are supersensitive to the job picture.

"In order to be able to look forward to a relatively strong sales season, we need no fewer than 175,000 to 200,000 jobs every month," said Barnard.

"When you tell me we added 96,000 jobs in September, I will tell you we are looking at a holiday season that is going to perhaps be a little better than last year, because prices are low, but not much better."

David Ricci, retail stock analyst at William Blair & Co., says the best predictor of holiday sales is a combination of weekly claims for jobless benefits and data on labor productivity.

Lower benefit claims and higher productivity translate to more workers with higher standards of living.

This year, trends in home values and gasoline and heating oil prices are secondary factors. But the shrewdness of buyers and sellers cannot be ignored.

"Consumers and retailers are becoming more game-oriented," said Resler.

"Consumers don't want to part with their money until they have to," said Barnard. "They are postponing their purchases to the last minute. That makes it difficult for retailers to assess the inventory that is necessary."

Retailers promoting markdowns may move goods, but post weak profits after the holiday season ends. A strong finish to the season that erodes profits could send stock prices lower.

Speaking of stocks, a game that many consumers also play - the stock market - has become its own retail sales predictor.

"When we look at where actual spending came in differently than we projected, you can almost always associate it with a major change in the stock market," said Ricci.

For example, sales were robust in the 2003 holiday season, despite poor job figures. But stocks rose nearly 12 percent in the 2003 fourth quarter.

Bill Barnhart is a columnist for the Chicago Tribune, a Tribune Publishing newspaper. E-mail him at yourmoneytribune.com.

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