Retail Data Paints a Gloomy Picture

A double-dip is unlikely, a mentality shared by the US government, CEO's, economists, and many investment firms. They have coined this recovery as a "jobless recovery," that is, an economic recovery providing little jobs. This is an unusual circumstance since all past recoveries have coincided with dropping unemployment.

The Canadian economy, which is growing at around 6 per cent and has created thousands of new jobs and as such, consumers are able to support a recovery. However, in the United States, the country's unemployment level remains between 9.5 and 10 per cent.

The "pros" believe that the continued strength in corporate profits is proof there is an economic recovery in America. Why just today, Wal-Mart [WMT:NYSE] and Home Depot [HD:NYSE], also Dow components, reported earnings beating estimates; Wal-Mart even raised their guidance for the remainder of the year. This trend of great corporate profits has been the story of 2010. 75 per cent of S&P 500 companies have beaten the estimates. These figures are being used as a crutch to support the idea that the American economy is on its way back, albeit, very slow and lacking job creation.

But wait, is this really an accurate picture of the American economy or a story of American companies being able to make money globally? The companies that have reported giant profits are companies that have stores all over the world. Wal-Mart has more than 4,000 stores in 15 countries, including China, which is now the second largest economy in the world, passing Japan just recently. Home Depot also has a substantial foot hold in Canada and Mexico, and some stores in China.

Companies have been saying for months that US sales are slow, yet the "pros" continue to believe in a recovery. Wal-Mart said today that their US sales were down 1.8 per cent and "steep price cuts did not boost sales as hoped". And Wal-Mart only beat by 1 cent a share today through cost-cutting measures. And revenue came in lower than expected. Wal-Mart earned $103.73 billion versus an expected $105.33 billion: $1.6 billion short.

Last week, Nordstrom [JVN:NYSE], a higher-end retailer only in the United States, provided earnings that were considerably weak, knocking the stock down over ten percent by Friday. Unlike the majority of retailers that have, or will be releasing earnings this week, Nordstrom has not exposed itself in the key Asian market, where growth is pacing nearly ten per cent a year or more.

Tomorrow, we will receive an earnings report from Target, the second largest US retailer, which also has limited exposure to Asia, if any. If Target's profit and guidance, along with other data, prove to be below expectations, I believe the "pros" should really take a second look at their predictions if they ever stumble upon my blog.

Yesterday, a report on BNN, Canada's business network, noted that junk bonds are pricing in a 25 per cent probability of a double-dip recession. That's a substantial figure, especially when 99 per cent of people believe a double-dip is very unlikely.

The US economy will be unable to grow if companies do not hire in the United States. We have seen that jobs are not created by government stimulus; it is small and large businesses that ultimately shape the landscape of any economy. They are the ones that price material goods and create services that consumers buy, and create jobs to maintain the cycle. But if nobody is coming to buy their products in the US, why should they hire more workers?

A few months ago, I was very optimistic about the American economy because there were signs of growth, but 8 months later, this growth has stalled, and I truly believe that a double-dip recession is very likely.

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Image source: The Guardian (http://blogs.guardian.co.uk/ethicalliving/shopper.jpg)