US Consumers Under Pressure: Outlet Malls On the Way Out? A Coming Restaurant Recession?

Job growth in the US beat expectations. So reported the US government.  And since jobs have seemingly transformed into some sort of mental conditioning trigger to what has been a deeply entrenched confirmation bias by Wall Street, government report on jobs appears to have inspired manic buying on the stock market for the past 6 months. See chart here. Ironically, such frenzied stock market pumps emerged in whatever direction of jobs growth, or whether such reports posted beats or misses.

The paradox has been that US jobs have been growing so strongly such that consumers appear to be under sustained pressure. Or consumers haven’t been spending enough to the point that they have been affecting the corporate environment (sales and profits). This means that either jobs created have been of low quality material or that consumers have resisted on spending their incomes and instead have chosen to save them. But the personal savings rate  data (as of June) don’t seem to fit this logic.

The other probable explanation could be that these job numbers have not been representative of reality. Election time could mean the padding up of job numbers to enhance the chances of the incumbent's bet.

This post has not been meant to discuss about US job conditions or politics. 

Instead, this post has been intended to exhibit symptoms of increasingly strained US consumers

The Bloomberg reported (August 5) that retail trouble have spread to outlet malls, or malls designed to cater to manufacturers directly selling to consumers

Outlet mall square footage expanded by 33 percent over the past decade, according to Cushman & Wakefield. And a concept that began as a way to offer last year's fashions at cut-rate prices far from mainline stores soon grew beyond those boundaries…

After ramping up growth, outlet mall expansion is starting to slow

Retailers such as Coach and Nordstrom opened more outlet locations than mainline stores. Outlets crept into cities, and in many cases opened just a short drive from a retailer's full-price store. Many of the same deals were available on the Web, saving shoppers the outlet trip. Further blurring the lines between outlets and chains was the growth of off-price retailers such as T.J. Maxx, which also carries discounted brand names.

Now, that retail growth engine is slowing. Retailers have put outlet store opening plans on hold. Real estate developers are wavering: There was 1.8 million square feet of U.S. outlet center space under construction in the second quarter, compared to 4.2 million square feet under construction during the second quarter of 2015, according to Cushman data. 

 

After 15 straight positive quarters, outlet center construction growth turned negative at the end of 2015. In the second quarter, outlet center square footage under construction fell 24 percent from the year before, Cushman's data show.

So more signs of brick and mortar shopping mall woes.

Some corporations have recently reported conditions that has manifested the said symptoms, as enumerated by the Sovereign Investor.com

Reports earlier this week hit the presses, and I immediately noticed a trend: The American consumer is no longer going to be the all-star for the economy. Take for instance:

-Ford, GM and Chrysler — three of the U.S.’ largest auto companies — reported sales for July that missed estimates: down 3%, 1.9% and up 0.3%, respectively.

-Delta Airlines, one of the largest airlines in the world, said revenue fell 7% in July as part of its monthly performance update.

-Macy’s, the biggest department store company, reported a decline in sales for July, leading to more aggressive markdowns and an industry-wide sell-off.

Many analysts are now anticipating a restaurant recession, similar to what led the previous two recessions, as major restaurant chains McDonald’s, Chipotle and Texas Roadhouse are posting weaker earnings and offering up guidance below analyst expectations.

These are all consumer-driven businesses, and they all speak to a weaker consumer.

Retail outfit Office depot which closed 400 hundred stores by the end of the second quarter announced that it will close 300 more in the 3 years. Aside from household, signs of decay in business conditions?

And speaking of the risk of ‘restaurant recession’, another Bloomberg article (August 2) noted that

Restaurants are having a pretty unappetizing earnings season.

Fifteen of the 16 restaurant chains that have reported second-quarter earnings so far said sales were down from a year ago, or that growth had slowed from the previous quarter. For the first time since 2009, average comparable sales for the group turned negative.

The downbeat results prompted Stifel restaurant analyst Paul Westra to deem it the start of a "restaurant recession."

 

Of course, a downturn doesn’t mean that all restaurants will be affected. Some will benefit from the miseries of others. 

For instance, US consumers have reportedly downscaled on outdoor meals in favor of burgers and pizza joints. Such is called the income and substitution effect.

The point is: the weakening US consumer chimes with what has been going on elsewhere around the world.