It’s that time of the year again: The NRF spin (It’s good despite it being bad)

Oddly enough, the National Retail Federation (NRF) did not choose to build on its 2014 ruse that Thanksgiving sales, which were down 11%, were disappointing because there is an “evolutionary change” of online shopping. If anything, this theme would have found stronger support in the media this year, with Amazon sales growing by 23% in Q3 and a MasterCard research citing holiday season online sales growth of 20%. Never mind the fact that online sales only account for a tiny portion of total retail sales.

NRF-holiday salesHowever, better sense prevailed. The NRF did admit, to a large degree, that the U.S. Retail sector has been weak. And don’t be fooled: despite U.S. holiday sales (sales in November and December excluding autos, gas and restaurants) growing by 4.1% in 2014 and an estimated 3.7% in 2015, the consumer is under pressure.

The NRF, in fact, went on to highlight in this article that although general retail prices were 2.9% lower in October than a year earlier, as per the U.S. BEA, rent, healthcare costs and even the amount spent on communications like smartphones, tablets and broadband Internet service had all increased. Much of the extra money freed up by lower gasoline prices would have plausibly gone to such higher costs and travel and restaurants rather than retail merchandise. In other words, the consumer is feeling the pain pretty much everywhere, leaving little room for discretionary expenditures to grow.

“All of this has combined to create a very deflationary atmosphere the past year or more, meaning retailers have needed to be competitive and drop prices to keep products moving off the shelves.”


Retail Sales in the U.S. increased 1.40% in November of 2015 over the same month in the previous year. The figures have been on a downward trajectory of late and missing forecasts significantly and consistently (Source:

US Retail Sales YoYUS Retail Sales Recent

From the NRF’s perspective, Retail sales for November — excluding automobiles, gasoline and restaurants — were up 3% from a year ago, also below its expectations.


Furthermore, a crucial indicator of corporate over-optimism, firms’ inventories to sales ratio, is rising rapidly.

Inv to Sales
Readers may be astonished to know the strength of this weakness – the October U.S. Census Retail Inventory to Sales ratio was at the highest point since 2008 at 1.57. This means that the retail industry, on an aggregate, was overstocked by an astounding 57% in the month of December.  Even more distressing is that the ratio is well spread throughout sectors – Clothing & Departmental Stores have inventory worth close to 3x the revenue they are generating. Motor vehicles, home appliances, building materials and general merchandise have on an average 1.86x the inventory than sales. Also, looking at historical trends, this ratio usually drops sharply m-o-m in December, but then picks back up again in January to beyond levels seen in October.

The pain, thus, is likely to intensify for corporations in a soft growth environment, in the March-2016 quarter.


U.S. corporate profits decreased by 1.7% to USD 1508.90 Billion in the third quarter of 2015 from USD 1533.90 Billion in the second quarter of 2015. Moreover, comparing retails sales y-o-y growth of 1.7% to CPI rise of 0.20% y-o-y and wage growth rate of 4.3% y-o-y in October 2015, corporations are clearly troubled. (Salaries as a percentage of operating expense varies from 18% in retail/wholesale trade to 52% in health care services. Source: Society for Human Resource Management). If one were to consider Shadow Government Statistics’ 1990-based CPI figure of close to 4%, coupled with the wage growth of also in the region of 4%, one can see that the retail sales did not rise enough to offset the increase in costs for the corporations.


Yet, our Christmas isn’t complete without that little twist in the headline by the NRF: “Consumers Win as Retailers Cut Holiday Prices”! It’s alright, because despite bad news for retailers (the very group that NRF represents) who are having to slash prices, it is good news for the customers “in the long term”. Gotcha!