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Are we in a recession now? Just look at discount retailers

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The biggest debate in financial markets is whether the US economy is already in a recession, and that’s because the data is decidedly mixed. Inflation is raging, but the job market is hot. Perhaps the answer lies at discount retailers.

Even though the benchmark S&P 500 fell into a broad bear market, falling 20.2% this year through Wednesday, Dollar General Corp. rose 4.58%, Dollar Tree Inc. jumped 18.1% and Ollie’s Bargain Outlet Holdings Inc. climbed 33.2%. %. This is an astonishing level of outperformance and reflects the theory that as inflation accelerates, consumers will be forced to fall back on cheaper, lower quality products sold by discount retailers. reduced.

Lo and behold, the three chains are in expansion mode and are opening new stores. Dollar General forecasts revenue growth of around 10% in 2023, and Dollar Tree slightly less. “We are now taking the necessary steps to position ourselves for accelerated growth in what I consider to be the most attractive retail sector, especially in the current economic environment,” the CEO of Dollar said recently. Tree, Michael Witynski, on an earnings call. It’s never a good sign when discounters are the growth segment of retail.

Admittedly, there really isn’t enough history behind these actions to make definitive statements about whether the economy is shrinking. Ollie’s went public in 2015 and Dollar General in 2009. Only Dollar Tree has been around long enough to benchmark its performance during recessions, but only barely, having gone public in the mid-1990s. Its shares strongly outperformed during the financial crisis, when the consumer was truly suffering from mortgage defaults, but less so during the dot-com crisis when it was seen more as a growth stock.

The cost of living is rising rapidly and the performance of these three companies suggests there is no end in sight. The Labor Department said this week that its consumer price index jumped 9.1% in June from a year earlier, the biggest gain since late 1981. Bloomberg Economics estimated that the American households will have to spend an additional $5,200 this year, or about $433 per month, for the same consumer basket. It’s actually not very ironic that Dollar Tree recently raised prices to $1.25 instead of $1 because they were pressured by rising costs.

It wouldn’t be so bad if wages held up, but they don’t. Adjusted for inflation, weekly earnings fell 4.4% in June, the Labor Department also said, with the biggest drop in data dating back to 2007. rainy days to make ends meet. At 5.2%, the personal savings rate fell in April to its lowest level since 2009. Here’s an astonishing fact: more than a third of Americans earning at least $250,000 the U.S. median wage, say they live paycheck to paycheck. , according to a survey by industry publication Pymnts.com and LendingClub Corp.

All of this makes Friday’s retail sales report extremely important. The Commerce Department is expected to report that June sales among a control group used to calculate gross domestic product rose anemic 0.3% after no gain in May. Without the surge in gasoline prices, there would likely be no increase in retail sales for June, Bloomberg Economics said in a report outlining the data.

But we don’t really need this report or the official statement from the National Bureau of Economic Research to tell us the obvious, which is that the economy is already in a recession. You may not see a recession in economic data, but the stock market tells you everything you need to know.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Jared Dillian is the editor and publisher of Daily Dirtnap. Investment strategist at Mauldin Economics, he is the author of “All the Evil of This World”. He may have an interest in the areas he writes about.

More stories like this are available at bloomberg.com/opinion

#recession #discount #retailers

Post expires at 5:04am on Thursday July 21st, 2022

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