Halloween 2009- Scary news on Retail gas prices

Scary! Retail Gas Prices Hit Highest Level This Year


Retail gasoline prices continued higher Friday to a new peak for the year, forcing consumers to dig deeper into their stretched budgets to pay for fuel.

Natural Gas and Gasoline Higher
Natural gas prices have also been moving up, and have now climbed 16 percent in the past two months — just in time for the winter home heating season to kick in.
Supplies of oil and gas are plentiful, so that’s not why the prices are climbing. Storage points for natural gas are so packed that producers are running out of places to put it. Crude Oil stocks are also well above average levels.

Gasoline prices are now up 17 straight days according to AAA. That is the highest national price average since Oct. 26, 2008. Prices are averaging 5.9 cents higher from a week ago and 14.8 cents from a year ago. The average retail price for gas was $1.686 a gallon last December. Today's price adds about $50 a month on to the monthly gas cost for the gasoline customer compared with then.

Iffy Economic news
This comes at a time when unemployment is at a 26-year high, and consumer confidence is low. The stock market reacted badly to the consumer confidence numbers released on Friday, driving the Dow down almost 250 points on Friday.

Oil prices skyrocketed in July 2008, to $147 a barrel. That helped to put the economy into recession. Economists are worried that high oil prices will put a halt to the budding economic recovery.

Crude Oil and Dollar Trade
The current reason for the increase in pump prices is because crude oil prices have been rising, from $65 a barrel as recently as August to $82 last week. Oil settled Friday afternoon at $77 a barrel.

A year ago, gasoline prices were heading down as the recession kicked in and the implications of the global financial crisis became better understood. Demand for oil and gasoline went down with the economic contraction.

Crude Oil is moving generally higher because there are signs that the economy is improving. The weaker dollar US Dollar is also a large contributing factor, since crude oil’s worldwide price is determined in US Dollars, a less valuable currency leads to higher prices for oil. The US Commerce Dept. said that the U.S. economy grew at a 3.5 percent annual pace in the third quarter on Thursday, the best growth percentage in two years, breaking four consecutive quarters of declines.

Inventory levels of gasoline, heating oil and diesel fuel remain well above normal levels.

As the dollar rose on Friday, crude oil fell sharply. There was also the dour consumer spending report, and doubts about consumer confidence going into the holiday season.

There’s some scary Halloween news!

Stocks Dive as Consumer Spending Worries Mount

Stocks plunged Friday, erasing all of the previous day's big gains, as a drop in consumer spending made investors nervous the recovery momentum can’t be sustained.

Major stock indexes tumbled more than 2 percent in afternoon trading, including the Dow Jones industrials, which gave back all of Thursday's 200-point gain, and dropped an addition 50 points. Big decliners were banks, energy and materials companies. As stocks fell, investors moved to safer assets like the dollar and Treasury bonds. The decline in stocks came after a rally yesterday, based on a 3.5% GDP growth number.

Personal Spending Falls
Investors sold stocks after the Labor Department said personal spending fell 0.5 percent in September. This number was about where the forecasts said it would be, but it was the largest drop in the last three quarters and followed a 1.3 percent jump in August that was led by the government's “Cash for Clunkers” car rebate program, which was very popular.

The report casts doubt on the economy's recovery, which many economists fear has been primarily inflated by government stimulus programs. With no bounce in consumer spending, which makes up a major part of the U.S. economy, investors are worrying the recovery can’t last.

The Dow fell 249.85 points to 9,712.73, led by news of a drop in the mood of consumers. The Reuters/University of Michigan consumer sentiment index fell to 70.6 in October from 73.5 in September.

The Labor Department also reported Friday that personal income, which will drive a recovery by consumer spending, was flat in September compared with the previous month, although this was in line with expectations. A lack of income growth is due, in part, to ongoing high unemployment rates, also a major worry for the market.

Financials Decline
Financial stocks were among the day's biggest decliners. Shares of CIT Group Inc. dropped nearly 15 percent after the commercial lender said Carl Icahn, a major investor in the firm, agreed to support its restructuring plan and provide it with a $1 billion line of credit. CIT Shares dropped 14 cents to 81 cents.

Energy and basic materials producers also fell sharply as the dollar gained ground against other major currencies. On the New York Mercantile Exchange, gold prices slipped about $9 to $1,037 an ounce, and oil prices tumbled $2.85/BBL to $77.02.
Bond prices rallied as stocks fell. The yield on the benchmark 10-year Treasury note fell to 3.42 percent from 3.50 percent late Thursday.

Stocks have has a rough week, but finished the month slightly up from September’s close. Without stronger evidence that the labor market is improving, consumers are not going to feel comfortable about spending. Indications are investors will have trouble extending the market's massive rally into a ninth month. With this week's declines, the S&P 500 index is still up roughly 55 percent since hitting a 12-year low in early March.

Major Economic News Due this Coming Week
Analysts say trading is likely to remain volatile this coming week. There is a large quantity of major economic news coming this week. Two that will be closely watched are sales reports from major retailers and the Labor Department's October employment report — arguably the month's most important piece of economic data. The Fed will also convene for a two-day policy meeting beginning Tuesday.

There were eight losers for every winner on the New York Stock Exchange, where volume came to 791.6 million shares, compared with 852.5 million at the same time a day earlier. Overseas, the averages were mixed, with Japan's Nikkei stock average rising, while European markets in Britain, France and Germany fell.

Dollar Stores have the Blueprint for Profits in Current Economy

Source Article: Discounter Dollar General lifted by downturn in US | www.retail-week.com (view article)

Ramifications:

1) Value oriented retailers like dollar stores will experience growth vs Competitors

2) "Cash is King" for the Middle and Lower Middle Income Households

3) "Value" pricing and Large Store Count Means convenience for consumers

4) Other sectors should benefit from downturn, Auto Parts, Rent-to-Own among big potential winners.

Analysis:

The news that Dollar General's results are good is a direct reflection of the prevailing retail climate in the US. "Value" is winning the battle for the hearts and minds of consumers as economic uncertainty continues to be the headline.

The "Dollar Store" category is interesting in that it offers a bare bones consumer experience, private label and lesser known CPG brands, and no frills for the consumer. Exactly what families worried about current finances and future job security and shaky signals from business and the government want.

The shampoo still gets your hair clean, the kids still drink the carbonated soft drinks you can buy in 2 Liter bottles "2 for a buck".

It will be interesting to see Pepsi and Coca-Cola's volume figures, as they have tried to make a price increase stick in the face of the economic downturn. Coke went with a straight price hike, Pepsi went from 12 paks to 8 paks for 12 OZ cans. The dollar stores can give a good alternative to that.

Dollar General is a retailer that fills an urgent need right now, and the news of continued store count growth makes sense. The ubiquity of well-known Dollar Brands in suburban and working-class communities has eliminated any stigma consumers may have felt about patronizing the stores. They are convenient and provide value. Big Lots is a good bet to prosper, too.

That should lead to thinking about other retailers who may benefit from consumer sentiment and the economic climate right now. Auto Parts retailers come to mind. Cars aren't being purchased, new OR used, but people are still driving. Somethings gotta give, and I think Autozone and Advanced Auto parts could be beneficiaries of this trend; Pep Boys and other repair service chains should benefit, too.

Rent-to-own retailers Rent-a-Center and Aaron's Rents should benefit as consumer credit stays tight and consumer confidence remains low.

Retail this coming year will have some bright spots, but they will be in value-oriented main brands (Wal-Mart, McDonald's), and retailers like Dollar General and Rent-A-Center, whose offerings appeal to families who are struggling to maintain their lifestyle, when it's becoming very tough to do that.

November retail sales drop shouldn't be a surprise to most retailers.

This analysis was written for Gerson Lehrman News and published December 5

Implications:
1) Credit restrictions are going to inevitably lead to lower retail sales.
2) Economic news and what they experience has consumers nervous
3) Sales made at discount prices reduce top-line revenues, and"Super-Specials" on Black Friday create expectations of better sales.

Analysis:
The news is brutal everyday...Country in recession since beginning of 2008. (That wasn't news to the average person). General Motors(NYS:GM) looking at bankruptcy protection. Circuit City(NYS:CC) and Linens N Things in bankruptcy. Auto dealers closing all over the country. Foreclosure crisis. Global Economic slowdown.

Even the breathtaking decline in energy prices and commodities in general are a sideshow to the unrelenting economic gloom.

The US government seems to making up the "Bailout" or "Recovery Package" as they go along, as each measure they enact seems to have negligible effect on the overall problem of a severe economic slowdown.

While we're all sure that everyone at Treasury, Commerce, the Fed and all the worldwide authorities are doing their best, the overall impression to most people I know is the world governments and agencies don't have a clue as to how wide and deep the problems are.

That being said, the fact that overall sales in US retail are down in only single digits should be a positive, not a negative, sign that the US economy is more resilient and the US consumer tougher and less risk-averse than the institutions that are the causing the pain.

If there's no consumer credit, car sales will suffer. Even more importantly, if the credit score criteria for getting an auto loan stay the same going forward, the ready pool of automobile buyers will be smaller, leading to a smaller new car market.

Each and every step of this process shouldn't be reported as a fresh "disaster". It's a systemic problem.

If the average consumer can't get credit readily, home furnishing and large-ticket electronics purchases are going to fall. It's not a problem with the retailers or offerings, it's a matter of the mechanism most people use to purchase larger-ticket household items is broken. As much as US homeowners love flat-screen TV's, they love eating and caring for their families more.

So, when earnings for furniture retailers and manufacturers come out, it's not a new story of another category falling apart; it's just a continuation of the consumer credit crisis, same as the auto sales drop.

Jewelry companies are reporting lower sales, again, no surprise, just another manifestation of shrinking consumer credit. So when strip centers and malls start losing retail tenants and commercial mortgages become the next crisis, it's still the same story.

The US consumer should be congratulated for what they've been able to accomplish, even in this very tough economic time. They are trading Macy's( :M) for Wal-Mart(NYS:WMT), auto parts chains should be picking up business while the dealers starve, the "Rent-to-Own" businesses (Aarons, Rent-a-Center) will be busier than the Rooms-To-Go or the Ethan Allen(NYS:ETH) store.

The consumer will adapt and survive, but it's time for a real, comprehensive program that people can have confidence in.