Macy’s Q3 Report Reveals People Not Buying Stuff in “Recovering” Economy

While the government and mainstream media keep telling us, “The economy is improving, the economy is improving!” we keep getting news like this from the New York Times:

With a hint at what may be in store for shoppers this holiday season, Macy’s cut its profit outlook and CEO Terry Lundgren said markdowns are likely as a convergence of factors lead to a high inventory of goods for retailers. Macy’s third-quarter sales fell 3.6% at established locations.”

Macy’s Q3 revenue dropped to $5.87 billion, falling short of the $6.15 billion forecast by Wall Street analysts. The company dropped its full-year earnings forecast a full 50 cents, from $4.70 to $4.80 per share down to $4.20 to $4.30 per share.

Comparable store sales also tumbled by 3.9%. That was far worse than the expected negative 0.4% drop.

The New York Times offered a number of plausible excuses for Macy’s poor performance, including warm weather and a strong dollar. But the bottom line is people simply aren’t buying as much stuff, as indicated by Macy’s chairman Terry J. Lundgren in his statement:

We are disappointed that the pace of sales did not improve in the third quarter, as we had expected. Spending by domestic customers remained tepid, especially in key apparel and accessory categories. Simultaneously, the slowdown in buying by international visitors continued to significantly impact Macy’s and Bloomingdale’s stores in tourist centers, which are some of our company’s largest-volume and most profitable locations.”

This doesn’t bode well for an economy driven by consumption. According to World Bank figures, personal consumption makes up nearly 70% of the US GDP.

Macy’s was the first major retailer to release its Q3 earnings report, and it likely serves as a canary in the coal mine. The numbers reveal some deep underlying problems in the economy. The New York Times actually touches on one of the deeper issues – inventories – but then blows right past it, focusing instead on the favorite media excuse for poor economic performance: bad weather.

Meanwhile, the Commerce Department said on Tuesday wholesale inventories increased 0.5% in September, more than expected.

Of course, Reuters spun this as a positive, saying in its opening paragraph that third-quarter economic growth estimates could be revised higher as a result. In truth, large inventories do not bode well for the economic future. Reuters finally gets to this point at the end of the article.

Sales at wholesalers rose 0.5% in September after declining 0.9% in August. Sales had been sluggish since last August…At September’s sales pace it would take 1.31 months to clear shelves, unchanged from August, a still high level that suggests businesses will be in no rush to restock warehouses.”

In fact, as ZeroHedge points out, wholesale inventories have never been higher relative to sales – not ever. Wholesale inventories have now risen 4.7% year-on-year, as sales have fallen 3.9%. Clearly, people aren’t buying things. That means a high likelihood of major inventory liquidation ahead.

The New York Times hints at this, but never gets around to actually reporting the dismal outlook or its ramifications.

This correlates with other news we’ve reported relating to consumer confidence. When you ask actual people about their spending, it turns out that it is declining.

That’s no secret to Macy’s.

The media keeps talking about an improving economy and the likelihood of the Fed raising interest rates, but even a quick peek below the surface reveals a structurally unsound foundation. With the European Central Bank considering plunging interest rates deeper into negative territory, tepid employment news underneath the headlines, and retail woes on the horizon, things really don’t look so rosy.

This post is part of our ongoing series Data Dependent: Reading Between the Lines, where we examine the real economic data not reported in the financial media. Click here to read all our articles in this series.

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