The housing overhang is hurting retail
The home glut is having a domino effect on retailers like carpet makers and home décor specialists.
By Suzanne McGee, The Fiscal Times
First, the good news: Existing home sales rose 1.4% in October to 4.97 million units -- more than the 4.8 million economists had expected. That’s going to help the supply overhang shrink a bit.
Still, Ian Shepherdson, chief U.S. economist at High Frequency Economics, argues that it will take until next spring and an increase in payroll earnings for the supply overhang to diminish and for a real recovery in the market to take place.
There’s also the risk, Shepherdson warned clients yesterday, of "hidden supply" hitting an improving housing market and derailing it.
What happens to housing is as vital to the health of the American consumer and the economy in the long run as Black Friday is to retailers in the short run. For consumer spending to continue to grow over the long haul requires a combination of factors: real income has to go up (either wages have to climb or the tax burden must fall), asset prices must increase (think the value of stocks, bonds, and other investments in a portfolio), or the value of homes has to rise.
A few parts of the retail industry are already showing the impact of a sluggish housing market. For instance, most people buy furniture for a newly purchased home; the same is often true of electronics. Not surprisingly, while real personal consumption expenditure grew at an annualized rate of 2.4% in the third quarter and retail sales climbed 0.5% in October, purchases of furniture slid 0.7% over September levels and were up only 3.4% over year-earlier levels, one of the smallest gains recorded.
As long as a whole-hearted housing market recovery remains elusive, it might be time to cast a wary eye on stocks like carpet manufacturer Mohawk Industries (MHK) or Kirkland (KIRK), a home décor retailer that just reported a plunge in its profits and a decline in same-store sales in its fiscal third quarter.
The absence of a robust housing market is far from the only constraint weighing on consumers and preventing them from spending gleefully, but it’s one of the biggest. While any sign of resilience in consumer spending later this week should be welcomed as another sign of economic health, don’t let it drive you to any impulse buys of your own in the stock market, especially when retail stocks are involved.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The apparel chain takes a hard hit after blaming the weather for its quarterly sales decline. But cold temperatures don't explain the drop in full-year sales as well.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.