I get a headache trying to figure out the financial media these days.
Last week, the business pages were full of gloom-and-doom stories about the bad economy and how the housing mess is greasing the skids for a recession this year. I thought that the banking industry had pretty much contained the sub-prime fallout and, even though a lot of lenders and borrowers would get whacked, the economy would hold together.
But one negative jobs report, the one that came out last Friday from the U.S. Labor Department showing a cut in job growth, seems to have given financial journalists a bad case of the vapors. All weekend long I saw headlines on Bloomberg, CNN, and Real Clear Politics.com with the word "recession" in the title. It's almost like they're hoping a recession will happen because so many members of the media hate President Bush. Any news that is bad for the President is good for them, the rest of the country be damned.
So you'd think that the financial forecast for the rest of the year, given the grim sentiment from the mainstream media, would be a lousy one.
If so, think again. According to a new study by BDO Seidman, LLP, a Chicago-based accounting and consulting organizations, chief financial officers (CFOs) at leading U.S. retailers -- the people who ought to have their fingers on the pulse of the nation's economic climate -- are predicting 5.6 percent retail store sales growth for 2007. That's way ahead the rate of inflation and also way ahead of the sales numbers we've seen so far in 2007.
That sounds like good news to me.
Of course, not everything is rosy. Close to half (47%) of the CFOs cited high fuels costs as the issue having the greatest impact on consumer confidence in the first half of 2007. However, looking forward to the balance of the year, there was less agreement among the CFOs on the main issue that will impact consumer confidence. High fuel costs (29%) and the weak housing market (25%) were cited by at least one-quarter of these executives, while interest rates (19%) and the sub-prime lending crisis (15%) were also mentioned by a number of CFOs.
“When you consider that high fuel prices have been with us for some time now, the shift in concern towards issues such as interest rates and the sub-prime lending crisis seems to indicate a growing anxiety about a potential credit crunch for consumers,” said Al Ferrara, a partner in the Retail and Consumer Products Practice at BDO Seidman. “Given the existing concern with the weak housing market – remember many consumers borrow based on the value of their homes - and the recent volatility in the stock market, discretionary income may dry up and that could have a negative impact on the retail sector as we move into the critical holiday shopping season.”
The study covered 140 chief financial officers at leading retailers located throughout the country. The retailers in the study were among the largest in the country, with revenues of more than $100 million, including 23 percent of the top 100 based on annual sales revenue. The survey was conducted in August of 2007.
Here are some of the more prominent themes culled from the study:
-- Same Store Sales Lag Overall Growth. A slight majority of the retail CFOs (56%) reported an increase in sales revenue over 2006 during the first six months of this year. However, when considering only comparable store sales the percentage of retailers reporting an increase dropped to less than half (45%). Less than a fifth (18%) of the CFOs reported a decrease in revenues in the first half of the year, with 22 percent reporting a drop in comparable store sales.
-- Rose Colored Glasses? Looking forward, a majority (71%) of the retailers anticipate total 2007 sales revenue to increase from 2006, with only 11 percent predicting a decrease. Overall, the CFOs estimated average revenue growth of 5.6 percent for 2007.
-- Weak Housing Concern of Largest Retailers. Among the financial officers at the top 100 retailers, almost half (45%) pointed to the weak housing market as the primary issue to impact consumer confidence during the remainder of the year, which is more than double the percentage of mentions (21%) among the balance of the retailers surveyed.
So yes, there are plenty of areas for concern as we move into the latter stages of 2007. The housing crisis isn't over, and credit is still tougher to get than it has been for both home borrowers and businesses. But, as the CFO study attests, there are plenty of points of optimism, as well.
Ultimately, take what the mainstream media says with a big grain of salt.