Can the Modest Drop in Gasoline Prices Save American Retailers?

The long crisis is finally coming to an end! Rising costs, falling employment, failing banks, the stock market crash… It’s all over!

According to the latest headlines, The University of Michigan’s Consumer Confidence Index is up 10 points month over month, the largest such increase in over four years! Quick -- break out the Cold Duck before we read down to paragraph six and sober up!

Oops. Too late.

When you put that gain in historical context, certain bracing facts are revealed. Like the fact that August’s C/S figure of 63 can be equated to “nigh-suicidal.” Back-studies of the Great Depression come in higher than that.

Heck, the average level for all of 2007, when the market was cranking out endless new highs, was 85.6.

So the current level of 73 is still somewhere down around “this stinks, but at least it wasn’t my job that was wiped out or my house that was foreclosed… yet.”

But it isn’t a total fantasy that consumers were a tad more chipper in August. After all, American families did finish the month with a nickel or two in the bank.

Oil is down to a mere $100/barrel (at least until the next OPEC meeting). And gas costs are a bit more reasonable. (I just filled up the family wagon for a mere $3.58 a gallon.)

The Lass household represents a pretty average suburban family, what with 2.4 kids, a dog and all. Tot up all the miles my wife and I drive, and that’s a fuel cost savings of -- wait a minute, let me do the math -- $5 a week. That’s a whole $20 for the month!

You know, I don’t think that’s where the big savings came from in August. Let’s dig a little deeper.

Americans survived the summer by staying home. I’m sure you’ve all heard enough about “staycations” and all that. That’s when folks just sit around the patio all summer drinking cheap beer and watching the children assault each other with underutilized beach toys.

But they didn’t just stay home from beaches, cruises and mountain resorts. No, they stayed home from the mall, the drug store and even the grocery store, too.

The U.S. Commerce Department reports that retail sales fell another 0.3% in August. Oh, and they also would like to mention that they blew the call in July. The modest 0.25% drop that had been suggested? It was actually a 0.5% drop, the largest such loss in five months.

But wait -- it gets even worse: The major automakers have been using every gimmick, red tag and faux employee discount to push inventory out the door. At this point, profit is irrelevant... They just need enough cash flow to cover the next round of forced retirements and plant closings.

But they did manage to move some units in August. Strip out profitless auto sales, and retail’s losses more than double!

For some reason, these miserable numbers have completely blindsided Wall Street’s cheerleaders, who had been calling for sales to increase in July and August. Had they lived in my neck of the woods, they would have noted the tumbleweeds blowing across the floor of the local mall.

Our mall has two large department stores anchoring it. One, Boscov’s, arrived a mere six months ago, and is already putting up bankruptcy sale posters. When news of August’s poor retail showing hit the wires, shares of the other anchor, Macy’s (M:NYSE), fell 6%.

I’ve got some news for Wall Street’s professional guesstimators: With job losses climbing at an alarming rate, with foreclosures setting new records, with most reputable economists (read as “not bought off by Wall Street and Washington”) conceding that we are already in a recession that will not end for at least two more quarters, American families are not about to spend the $20 they just saved at the mall.

Don’t let that Cold Duck go to your head, my friends.

Stay short retail.

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Other Related Topics: Consumer Spending , Recession , Unemployment