Unsettled economy: Consumer spending up, Commerce Pulse data fall, Best Buy bullish on holiday shopping

Reading the tea leaves in a few pieces of economic news Tuesday reveals a consumer willing to spend selectively as the economy limps slowly, if not to a booming recovery, then toward greater stability. But it also shows an economy stuck in low gear and lugging up a steep grade.

The U.S. Census Bureau announced Tuesday that it estimated consumer spending rose 0.4 percent from July to August and 3.6 percent from a year ago, with retail sales up 0.5 percent and 3.7 percent respectively.

This was the 10th month in a row of year-over-year growth in consumer spending estimated by the Census Bureau following 14 months of year-over-year declines. This estimate was above most analysts’ estimates reported by Dow Jones and Bloomberg News and indicated a cautious but willing consumer.

Alan Levenson, chief economist at T. Rowe Price Associates in Baltimore told clients, that “consumer spending is growing roughly in line with income, leaving the saving rate at roughly 6 percent.”

Richfield-based retail giant Best Buy’s (NYSE:BBY) reported second-quarter results that beat expectations, with earnings per share up more than 60 percent to $254 million. That came on modest sales growth of 2.8 percent to $11.4 billion. Sales were softer than the company expected, with same-store sales down 0.1 percent from a year ago.

The company saw a “slight decline” in market share in the United States, CEO Brian Dunn told analysts and investors on a conference call. The slip was driven by declines in mobile computing and entertainment software, as well as a slowing in home theater sales. Sales of higher-margin tablets and smartphones were up, however, which contributed to the strong profit performance.

Dunn said that “consumer spending [is] episodic. Customers are being highly selective about when they spend their money.”

While nearly three-fourths of its revenue comes from the United States, the consumer electronics retailing giant reported growth in European same-store sales of 4 percent, with China growing 20 percent. Even so, Dunn still is bullish on the U.S. market. “The largest growth opportunity for us is … in the U.S.,” he said.

Company executives were also decidedly bullish looking to the year’s end. That buoyed investors and traders who pushed BBY up $2.08 or 6 percent, to close at $36.73 on nearly 21.3 million shares traded, more than three times the average daily volume.

“Our optimism is balanced. We know the consumer is under pressure,” Chief Financial Officer James Meuhlbauer said. “Looking at revenue performance last holiday season, it surprised us that it was as strong as it was, especially in the November-December timeframe.  We got caught a little short on inventories overall … We think all the excitement is coming in the back half of the year.”

Dunn emphasized the focus the retailer puts on the year-end, saying, “I would add just one thing. Our machine is well suited to that holiday crush.”

Separately, Minneapolis-based Ceridian announced that its Pulse of Commerce Index (PCI), issued by the UCLA Anderson School of Management, fell 1 percent in August from July, though it was up 6 percent year over year. The index, which monitors diesel fuel purchases by fleet trucks moving goods over the nation’s highways, tracks the Federal Reserve’s monthly Industrial Production (IP) index. The PCI is projecting essentially no growth in the production index. 

“The restocking of inventory and exceptional growth in imports that were helping drive the transportation of goods and materials appears to be over,” said Craig Manson, senior vice president and index expert for Ceridian. “We have seen August economic results from the manufacturing sector continuing their positive momentum, but it’s too difficult to interpret, at this point, what it means for trucking.”

Ceridian described the index result for August as “a disappointing number that … indicates an economy struggling to move forward, following July’s increase of 1.7 percent and June’s drop of 1.9 percent.” 

“The August PCI is consistent with a predicted third quarter GDP [Gross Domestic Product] growth number in the range of 1.5 to 2.5 percent, which is the current consensus view of the economy, “Ceridian said. “The low GDP percentage range is significantly under the 5 to 6 percent rate required to put people back to work.”

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