In today’s note, David Rosenberg presents 10 signs that the deflation is the theme of this year’s retail season, and that things are going worse than people realise:
• Producer prices for boxes and containers are going down, not up. Maybe
FedEx is bullish on its outlook, but it begs the question as to why it is that
paper boxes and containers fell 0.4% in November after dropping 0.7% in
October ― a 6.7% annualized decline in the last 2 months for the steepest
falloff for this time of the year in 12 years. Go figure.
• This is Christmas time, following on the heels of Chanukah time. So what is
with toy prices sliding 1.7% in November ― the second decline in a row.
• What about our gift-wrapping price index from the personal care segment of
the CPI? Prices here have deflated at a 2.8% annual rate over the past three
months ― a huge swing from the +3% trend in November 2010 and the
softest pace in seven years. Then again, if you’re not buying any toys to stick
under the tree, then there’s no need for wrapping paper, is there?
• What about flowers? Prices are down at a 1.5% annual rate over the past
three months ― we haven’t seen a November performance like this since
1999 when all we were buying ahead of Y2K were flashlights and bottled
• Turkey prices sank 2.5% in November ― the most important gobble time of
the year ― and the trend is flat for the past three months. This is amazing.
• The prices of sweets sank 1.4% in November, the steepest decline on record.
No demand for chocolate covered reindeers this year?
• Wine prices fell 0.4% in November ― they hardly ever decline during this time
of the year ― and are down in three of the past four months! This hasn’t
happened in over two decades. Then again, if the turkey price is going down,
then complements like sauvignon blanc should be doing likewise, n’est-ce
• Not only wine but liquor prices declined down 0.8% in the last two months,
despite the fact that this is the most lubricating time of the year. Come to
think of it, I thought I did see someone buy a 15-year Balvenie for under $70
at an LCBO last week.
• Well, the little kiddies shouldn’t feel bad about the lack of demand driving toy
prices down. For the rest of us, the price of electronic goods is now down five
months in a row. And books fell 0.2% last month and are down in four of the
• But … not everything is deflating for the retail sector. The areas that seem to
have at least a modicum of pricing power so far in this holiday shopping
season is apparel, sporting goods and jewellery (that little blue box never
does go out of fashion, does it?).
All that being said, markets don’t care. Retail stocks are at a record high, and one of our favourite guages of investor bullishness — the ratio of consumer discretionary names to consumer staples — is rebounding nicely after an early December swoon.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.