On Thursday, the US Department of Commerce reported that the food and retail sales for the month of May were a seasonally adjusted $444.9 billion, a gain of 1.2% when compared to April or 2.1% when compared to May of 2014. Retail trade sales have improved 1.4% when compared to last month, and 2.0% when compared to May last year. These numbers are better than what most economists were expecting, and show that the retail sector is recovering from what was a somewhat lackluster start to the year. Many blamed the less than stellar first quarter on harsh weather which discouraged consumer spending, but given the recent payroll data it is likely that spending will continue to increase throughout the year.
During their most recent quarterly statements, most big retailers were expecting their sales to improve in the second quarter as they predicted consumers to be more willing to spend following the harsh winter. However, when projecting their estimates for the next quarter they were still cautious as to how the strong US dollar might hurt their numbers. In their first quarter release, Wal-mart’s (WMT-US) executive vice president and CFO Charles Holley stated that they were expecting a Q2 EPS of $1.06 – $1.18, and that this number included the impacts from the foreign currency and wage/training costs. The better than expected retail sale number may end up pushing their Q2 EPS to the higher half of that estimate if current trends continue in the consumer market. Other retailers like Target, Costco, and TJX will also likely see an improvement on their sales estimates thanks to what appears to be a general increase of consumer spending in retail, although their total revenue will still likely be hurt by foreign currency.
In the close of Q1, Macy’s and J. C. Penney both forecasted that this coming quarter would be generally more favourable in terms of growth, with both of their respective CEOs stating that they expected the slow start to the year to be over as most of the short-term problems they faced were behind them. J. C. Penney in particular seemed very optimistic, and went as a far as raising the sales, growth margin and SG&A expectations for the year. Given that the retail sector seems to be finally gaining traction it would seem that J. C. Penney will be able to live up to those words, and that they might have the strong Q2 they are expecting.
This better than expected growth in retail sales has indicated that the US economy is starting to get stronger, an idea which is only further strengthened by the recently released better than expected job numbers. That being said, the US Department of Labour recently reported their initial unemployment insurance claims for the week ending June 6, stating that 279,000 seasonally adjusted initial claims were filed, an increase of 2,000 from the previous week. Using the 4-week average, a measure used to reduce the week-to-week volatility, claims were reported at 277,000, an increase of 1000 over last week’s 276,000. Looking at the 4-week average it seems that claims have been going up over the last month, but are still lower than what we have seen for early 2015. This upward trend seems to contradict the fact that the non-farm payroll increased better than expected, however the initial unemployment insurance claims do not take into account the fact that more people are now actively looking for work by joining the unemployed labour force.
Figure 1: Weekly Initial Unemployment Insurance Claims from start of 2015 to June 6
In other news, the EIA recently reported that natural gas storage levels were at 2,344 bcf as of June 5. This marks an increase of 111 bcf over the previous week, and is 1 bcf less than analyst estimates. The following graph shows how storage levels have changed since the start of 2015 on a week-by-week basis.
Figure 2: Weekly Natural Gas Storage Levels from start of 2015 to June 5
The current amount in storage is a 47% increase when compared to last year, and is expected to continue to increase over the summer as it has in the past. This increase in natural gas storage is fueled by demand for air-conditioning amidst hot summer weather. The EIA is currently predicting a new monthly record in July as production continues to ramp up. Below shows a 5 year comparison of storage levels, and shows the cyclical rise and fall of natural gas storage.