Comsumer Reports Retail Index January 2010

Shoppers came back for the 2009 Christmas holiday. Retail sales for December finished strong, building on the gains in November. Despite lackluster retail numbers since August 09, consumer purchasing was up markedly in December (January past 30-day). The Past 30-Day Retail Index* rose to 14.1, up from from 11.2 in November, a gain of 26%. Since October, the Past 30-Day Retail Index* has gained 57%. Gains in the Past 30-Day Retail Index over the prior month were driven by purchasers of personal electronics (34.7%) up 6.2% pts., major home electronics (15.8%) up 3.9% pts., and major home appliances (9.6%) up 2.8% pts. The gain in major home appliances is likely attributable to those that had deferred purchases over the past months entering the market to take advantage of the deals and discounts that were available. The Next 30-Day Retail Index* for January, reflecting planned purchasing for that month, has retreated to 8.9, down from 12.2 for December, a decline of 27%, and is comparable to September (8.8). The drop in the Next 30-Day Retail Index* for January was driven by a decline in intent to purchase across most categories with the exception of major home appliances. Planned purchasing of major home appliances was the only category that demonstrated a gain for January.

Despite a sober retail outlook for January, there have been real improvements in many of the core metrics. Consumer Sentiment has risen to 44.1, up from 41.8 in December, its first meaningful uptick since June.

The improvement in Consumer Sentiment is tied to a decline in the Trouble Tracker Index. This measure of financial difficulties has shown steady improvement since September and now stands at 58.2 down from 62.0 the prior month. One persistent financial problem that has confronted consumers is the negative change in terms on their credit cards (increased interest rates, penalty fees, etc.) reported by 14.4% of Americans in the past 30 days.

The Employment Index is at 49.3, unchanged from December’s 48.9, reflective of a market that is still shedding jobs. The one improvement was a decline in those claiming to have lost a job in the past 30 days to 6.0% from 7.4% the prior month. This improvement, however, was offset by fewer starting a new job in the past 30 days (4.7%) compared to December (5.2%).

The economy is improving gradually for consumers as witnessed by improvements in the Trouble Tracker, pointing to a decline in financial difficulties and a rise in Consumer Sentiment. Employment remains the key drag on the economy not only due to the hardships of the unemployed, but also the uncertainty for the future it fosters among all Americans. Though the Past 30-Day Retail Index* was strong for December, planned purchasing for the month of January has pulled back sharply. While this may only be a seasonal dip, it is possible that we may see a pull back to pre-holiday levels as consumers recover from their splurge.

Though the Leading Economic Indicators (LEI) signal the beginning of the recovery, this improvement has not touched consumers substantively in their daily lives. Recovery will be led by improvement in the consumer’s condition in reduced financial difficulties, as measured by the Trouble Tracker Index, and improvements in both the Employment Index and a return to solid, sustained improvement in the Retail indices. Unless consumers can see concrete improvements in their lives, the engagement needed by them to fuel a robust a recovery over the next 12 months is unlikely.

*major appliances, small appliances, home electronics, personal electronics, major yard/garden equipment

Summary
Consumer Sentiment has had its first meaningful uptick this month since June 09 at 44.1, up from 41.8 the prior month. Consumer sentiment may be poised to begin a period of improvement.
The most optimistic consumers:

• Age 18-34 (49.1)
• HHLD income $50K-$99K + (50.3)

The most pessimistic:

• HHLD income less than $50,000 (39.1)

The Consumer Reports Trouble Tracker Index addresses both the proportion of consumers that have faced difficulties as well as the number of hurdles they have encountered. This index has shown improvement over the past several months, falling to 58.2 in January from 62.0 in December, continuing a downward trend from September 09 (68.7). The key financial difficulties faced by consumers this month included:

• Credit card increased interest rate, penalty fees, etc. (14.4%)
• Most common in the West (18.2%)
• Unable to afford medical bill or medications (12.7%)
• Missed payment on a major bill -- not mortgage (8.7%)
• Lost or reduced healthcare coverage (8.0%)
• Lost job (6.0%)

Lower-income households, earning less than $50,000 a year, have been disproportionately affected. In the past 30 days: [

• 21.3% have been unable to afford medical bills or medications
• 9.4% lost their job or were laid off
• 11.1% lost or have reduced healthcare coverage
• 13.9% missed a payment on a major bill (not mortgage)

The level of stress consumers feel they are under is down in January despite the stresses we may have assumed would be imparted by the holidays. The Stress Index stands at 59.0 this month, down from December (63.0).

The Employment Index stands at 49.3 for January, reflective of net job losses in the prior 30 days, and was on par with December (48.9). In the past 30 days, 6.0% reported losing their job versus 4.7% starting a new job.

Despite lackluster retail numbers since August 09, shoppers came back for the 2009 Christmas holiday. Retail sales for December finished strong building on the gains in November. The Past 30-Day Retail Index* rose to 14.1, up from 11.2 in November, a gain of 26%. Since October the Past 30-Day Retail Index* has gained 57%. The Next 30-Day Retail Index* for January, reflecting planned purchasing for that month, has retreated to 8.9, down from 12.2 for December, a decline of 27%, and is comparable to September (8.8).

• Looking in detail at the categories comprising the retail index (major appliances, small appliances, home electronics, personal electronics, major yard/garden equipment), the gains in the Past 30-Day Retail Index, reflecting purchasing in December, over the prior month were driven by purchasers of personal electronics (34.7%) up 6.2% pts., major home electronics (15.8%) up 3.9% pts., and major home appliances (9.6%) up 2.8% pts. The gain in major home appliances is likely attributable to those that had deferred purchases over the past months entering the market to take advantage of the deals and discounts that were available. [PAGE 15]
  
• The Next 30-Day Retail Index* for January, reflecting planned purchasing for that month, has retreated to 8.9, down from 12.2 for December, a decline of 27%. The drop in the Next 30-Day Retail Index* for January was driven by a decline in intent to purchase across most categories with the exception of major home appliances. Planned purchasing of major home appliances was the only category that demonstrated a gain for January (7.8%), up slightly from December (7.0%), and is at its highest level in months.

Among retail categories not included in the index (new car, used car, and new home), past 30-day purchases of new cars and used cars (reflects December activity) remained unchanged from the prior month, as was new homes.

January’s next 30-day planned purchasing (reflects January activity) is down for used cars at 3.4% versus 4.7% the prior month, while new-car planned purchasing is unchanged, as is new homes.
Regionally, the South demonstrated the greatest improvement over the prior month across core metrics including the Consumer Sentiment Index, Stress Index, Employment Index, and Past 30-Day Retail Index*. Overall the picture was largely unchanged in the North East, North Central, and West.
*major appliances, small appliances, home electronics, personal electronics, major yard/garden equipment