Fisher Investments Editorial Staff
Emerging Markets, GDP, Globalization, US Economy, Corporate Earnings

A Retail Pop

By, 08/12/2011

Currently, it’s quite easy to find a number of news stories detailing economic negatives. Which is understandable—US GDP hasn’t been gangbusters in 2011’s first half. But it’s important to remember, economic growth is never a straight-line acceleration—growth-rate variability is normal. In fact, our research shows in six of the last seven expansions (dating back to 1960), growth typically decelerated one to two years into expansion before re-accelerating again. In our view, that’s likely what’s happening now.

Further, though getting short media shrift currently, ample signs of economic health do exist. Amid steep market volatility, it’s often to easy focus on negatives and ignore positives. For example, retail sales have been quite strong in the US and globally but have gone relatively unreported:

  • US sales grew a big 8.1% in June over 2010 and are expected to grow 8.4% in July over 2010. This after y/y retail sales grew 7.8% in May and 7.2% in April.
  • Brazilian core retail sales (excluding autos and construction materials) were up 7.1% y/y in June, accelerating from 6.3% in May.
  • Japanese retail sales rose 1.1% y/y in June, accelerating from May’s -1.3% pace.
  • UK retail sales grew 0.4% versus last year, accelerating from May’s flat result—not fast, but still positive and better than expectations.
  • Chinese retail sales grew 17.7% in June versus last year and beat expectations.
  • German retail sales showed marked improvement—they fell -1.0% y/y in June, but jumped a big 6.3% over May.

What’s more, as we wrote recently, Q2 US corporate earnings grew at a healthy clip—the seventh consecutive quarter of growth. But above and beyond that, revenue growth for the S&P 500 in Q2 2011 is expected to clock in at 12% year over year—a fact that has gone mostly underappreciated by the financial press. Corporate earnings are great—but can also be reflective of cost cutting (though there’s nothing wrong with that). Increasing revenues can be a much more direct reflection of global economic growth.  

Strong retail sales growth and growing revenues don’t paint a picture of economic malaise. Rather, they show that though the global economy has challenges (always true), all is perhaps not so terrible as many headlines would imply. The challenge for investors amid market volatility is to not miss the forest for the trees. Strip the widely discussed material negatives down to their factual roots and balance them against material positives for a clearer view.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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