Economic Outlook 2016

Transcription

1 Strategic Intelligence Presenters: Presenter: Michael Blackburn Dennis Cantalupo Michael Blackburn Economic Outlook 2016 February 4, 2016

2 U.S. Economy in 2015 The Good: - After weak Q1, down 2.1%, GDP growth strengthened mid- year and then was weaker than expected in Q4, up 2.6% - Unemployment fell to 5%, well below heights of 10% in 2009, 2.7 million jobs added in Consumer sentiment holding strong - Housing stable - prices up 5.8% through Nov (Case Shiller) - Inflation under control: lower fuel & commodity prices - Bankruptcy activity remains modest, although retail activity has increased - Equity markets volatile coming into 2016, driven by strong dollar and lower oil prices The Bad: - Wage growth since recession has been slow; job growth in low wage positions - Underemployment rate at 10%, and labor participation rate remains only 63%, a 40-year low; age group rate is 80.8%, or about 2% below pre-recession levels - Income disparity still an issue - High public and private debt - Corporate capital spending improving but still restrained - Lower fuel prices hurt energy sector, lower capex - Fed initiated rate hike in December, at least two more increases were expected in 2016, but Fed recently more dovish China soft landing & transition, growth nearing a 20 year low U.S. is a bright spot in the Global economy, but high dollar and sluggish global economies could hurt trade. Risks: EU break up; cyber attacks; China economy falls; middle east; Russia; climate change; oil rebound; US presidency

3 Economic Indicators GDP Average GDP growth since 1950s is 3.2%, compared to 1.5% since 2006, or 2.2% since 2010 Q4 Contributions to GDP Growth Consumer spending grew 2.2%, down from 3% in Q3 Contributions from residential fixed investment and federal spending were partially offset by negative contributions from private inventory investments, state spending, exports and nonresidential fixed investments. Source: Federal Reserve, Wall Street Journal 3

4 Economic Indicators Income & Consumption Real median income fell from about $57,400 in 2007 to about $54,000 in 2014 Real disposable income (DPI) up 2.4% in 2014, after a 0.2% decrease in 2013; Real personal consumption expenditures (PCE) increased 2.5%, compared to a 2.4% increase A good measure of consumer/economic strength is disposable income, defined as after-tax income Real disposable personal income rose 3.2% in Q4 after 3.8% increase in Q3; Personal savings rate increased to 5.4% from 5.2% in Q3 For 2015, DPI grew 3.5% and PCE grew 3.1%, compared to 2.7% for both in Dec consumer spending was essentially flat as the savings rate grew, despite low fuel prices and inflation 4

5 Economic Indicators Too Much Debt? Total federal debt rose to $ trillion, or just over 100% of GDP; debt held by public reached $ trillion, including $2.800 trillion held by the Fed Low rates, below GDP growth, have helped contain debt growth. As of 9/30/15, consumer debt was at $12.07 trillion, up 3% yoy, still about 5% below peak $ trillion in Most non-housing debt has been stable in the last three years, except student loans, which have increased 10% to $1.2 trillion, with delinquency rates over 10%. Auto loans also grew in

6 Economic Indicators Inflation & Pricing Inflation pressure remains weak. IMF Commodity Index fell 30.7% in 2015 with energy dropping 39.3%; non-fuel prices fell 19.1%, partly reflecting US$ appreciation 6

7 Economic Indicators Financial Markets 2016Outlook Fed began to raise rates in December, first increase since At least 2 increases expected in 2016, with target rate expected to increase to between 0.75% to 1.00% Prime rate currently 3.5% could hit 4% by year-end 10-year rate held at just over 2% most of 2015 Yield curve remains normal, though steepened in inflation risk remains low in 2016 but overall credit risks are increasing Treasury Yield Curve DJIA DJIA closed 2015 at 17,425, down 2.2%; 52 week range: 15,370-18,351, similar to

8 Federal Reserve 2016 Projections GDP growth remains soft; another slow Q1? Fed expects growth of around 2% through 2018, and stable unemployment in 5% range 2.7 million jobs added in 2015, but not enough to boost GDP growth. Number of Americans with jobs or seeking employment remained near a 40-year low of 62.5%; 81% among workers aged Adjusted for part-time and marginally attached workers, the rate was 9.9% in Dec, down from about 17% in Inflation, as measured by PCE Index, should increase and stay in 2% range. The price index fell 0.2% in Dec and was up 0.7% in U.S. economy still vulnerable to external shocks. 8

9 Economic Indicators Housing Home price growth appears to be stabilizing at about 5%, S&P/Case Shiller 20 city index was up 5.8% in Nov year-over-year. Existing home sales rose 15% in December, and reached 5.26 million for the year, the highest level since However, with prices and interest rates rising, sales growth is expected to slow in 2016 to 1% to 3% (National Assoc of Realtors). Home prices have climbed 29% from their bottom in Jan 2012, but are still nearly 5% below their record level from July Housing starts fell 2.5% in Dec, with declines in all markets except the Northeast 9

10 Geographic Trends Dec 2015 Foreclosure Rate Heat Map Source: Bureau of Labor Statistics Foreclosure trends continue to improve. The median sales price of a non-distressed home was $181,000 in Nov 2015 (up 25% yoy). The median sales price of a foreclosure home was $114,240, or 37% lower than non-distressed home sales. Foreclosure filings fell 10% yoy in December. (RealtyTrac) National unemployment rate fell to 5% in Dec 2015, from 5.6% at the end of 2014 and peak of 9.9% in Oct 2009 Highest unemployment - New Mexico (6.8%), D.C. (6.6%), W. Virginia (6.5%), NV (6.5%); Lowest unemployment ND (2.7%), NE (2.9%), SD (3%), HI (3.2%), NH (3.2%), 10

11 Commercial Real Estate Trends Store closings continue JCP, Sports Authority, Sears, Radioshack, Bi-Lo/Winn-Dixie, Macy s, Walmart, Alco, Target Canada, the Gap, Hancock, office suppliers. New store growth limited; capex trimmed and focused on remodels, technology, online and customer experience; M&A has created consolidation. Vacancy rate for regional malls decreased slightly o 7.8% in Q from 7.9% in Q3 and 8% Q This is down from a cycle peak of 9.4% in Q The strip mall vacancy rate decreased to 10% in Q4, from 10.1% in Q3 and 10.2% in Q (Reis). Reis noted construction remains at weak levels, and there has not been much change in rental rates over the past five quarters (up around 2% year over year). Strip mall rent growth accelerated slightly versus last quarter but the quarterly growth rates are so weak that any difference is marginal and insignificant. Certain markets such as San Francisco, NY, Phoenix and Miami seeing strength. Creditntell Retail REIT Roundup : 95.2% occupancy, 3.2% increase in average base rent 11

12 Retail Backdrop Consumption comprises about two thirds of GDP retail is critical component of economy Consumer sentiment, averaged around 93 in 2015, stronger on improved employment and lower fuel trends, but wage growth still weak NRF Holiday sales grew 3% to $626.1 billion, down from 4.1% in 2014; retailers used deep discounts to drive traffic; nonstore holiday sales grew 9% to $105 billion Risks: rising interest rates and health care costs; minimum wage hikes; data breach; stronger dollar Source: NRF 12

13 Sales Trends Retail sales fell 0.1% in Dec from Nov 2015, and rose just 2.1% for 2015 (0.9% excluding auto). U.S. Commerce Dept General merchandise rose 0.8%, electronics and dept stores fell 2.4%; and 2% Foodservices up 8.1% and food stores up 2.5%; Nonstore retail up 6.3%. Consumer sentiment rose to 92.6 in Dec and 93.3 for Jan jobs and fuel but will it translate to higher sales? Moody s expects core retail sales, excluding auto and gas sales, to grow about 5% in Trends: Rise of internet and off-price retail 13

14 Retail Operating Trends Source: S&P Retail/Restaurant Revenue & EBITDA Growth 14

15 Who s Opening, Who s Closing Most Recent Period Previous Year Count Change Food & Convenience Pct Change Shake Shack % 15 K-VA-T Food Stores, Inc % 27 Buffalo Wild Wings, Inc % 110 Alimentation Couche-Tard, Inc. 8,915 7, % 1,492 Natural Grocers by Vitamin Cottage, Inc % 16 Noodles & Company % 54 Sprouts Farmers Market, Inc % 25 Chipotle Mexican Grill, Inc. 1,931 1, % 207 Grocery Outlet, Inc % 23 Dave & Buster's Entertainment, Inc % 7 The Fresh Market, Inc % 16 Texas Roadhouse, Inc % 33 BJ's Restaurants, Inc % 14 Southeastern Grocers, LLC (a/k/a BI-LO and Winn-Dixie) % 59 Bravo Brio Restaurant Group % 9 Whole Foods Market, Inc % 32 Smart & Final Stores, LLC % 18 DeMoulas (dba Market Basket) % 4 Restaurant Brands International Inc. 19,514 18, % 964 Red Robin Gourmet Burgers, Inc % 19 The North West Company Inc % 10 The Cheesecake Factory Inc % 8 Fareway Stores, Inc % 4 Albertsons Companies, Inc. 2,267 2, % 71 YUM! Brands, Inc. 41,924 40, % 1,306 Panera Bread Company % 28 Sobeys Inc. 1,852 1, % 51 Casey's General Stores, Inc. 1,904 1, % 48 Northgate Gonzalez Market Inc % 1 Wegmans Food Markets, Inc % 2 Publix Super Markets, Inc. 1,106 1, % 26 Biglari Holdings Inc % 13 Organizacion Soriana, S.A. de C.V % 14 Tops Holding II Corporation % 3 McDonald's Corporation 36,405 35, % 541 Giant Eagle, Inc % 4 Darden Restaurants, Inc. 1,534 1, % 14 Jack In The Box Inc. 2,910 2, % 22 Denny's Corporation 1,700 1, % 11 Cracker Barrel Old Country Store, Inc % 4 Brinker International, Inc. 1,632 1, % 10 Stater Bros. Holdings, Inc % 1 Most Recent Period Previous Year Count Change Food & Convenience Pct Change SUPERVALU Inc. 1,536 1, % 8 Metro Inc % 1 Tesco PLC % 1 Bashas' Inc % 0 Bozzuto's, Inc % 0 Central Grocers, Inc % 0 Fairway Group Holdings Corp % 0 Marc Glassman, Inc % 0 Loblaw Companies Limited % 0 SpartanNash Company % 0 URM Stores, Inc % 0 Village Super Market, Inc % 0 Woodman's Food Market, Inc % 0 Redner's Markets, Inc % 0 Big Y Foods, Inc % 0 Wakefern Food Corp % 0 Alex Lee, Inc % 0 Hy-Vee, Inc % 0 The Kroger Co. 2,620 2, % -11 Ingles Markets, Inc % -1 Ahold % -5 Brookshire Grocery Company % -1 Weis Markets, Inc % -2 Marsh Supermarkets, Inc % -1 Schnuck Markets, Inc % -2 LRI Holdings, Inc % -5 Associated Food Stores, Inc % -1 King Kullen Grocery Company, Inc % -1 Bob Evans Farms, Inc % -14 Ruby Tuesday, Inc % -20 Cumberland Farms, Inc % -20 Save Mart Supermarkets % -8 Rouse's Enterprises, LLC % -2 Raley's, Inc % -6 Bloomin Brands, Inc. 1,280 1, % -69 Delhaize Group 1,291 1, % -72 The Wendy's Company, Inc % -143 Mars Super Markets, Inc % -4 Brookshire Brothers Holding, Inc % -39 Ignite Restaurant Group %

16 Who s Opening, Who s Closing Most Recent Period Previous Year Count Change Department Stores Pct Change Hudson's Bay Company % 138 Nordstrom, Inc % 30 Macy's, Inc % 60 Ross Stores, Inc. 1,448 1, % 82 Burlington Stores, Inc % 27 Gordmans Stores, Inc % 4 Von Maur Inc % 1 Neiman Marcus, Inc % 2 Stein Mart, Inc % 6 Kohl's Corporation 1,166 1, % 3 Boscov's, Inc % 0 BCE, Inc. (Operates The Source Retail Chain % 0 Dillard's, Inc % -1 Canadian Tire Corporation, Limited 1,690 1, % -6 Stage Stores, Inc % -8 Belk, Inc % -3 Beall's, Inc % -5 The Bon-Ton Stores, Inc % -3 J.C. Penney Company, Inc. 1,021 1, % -41 Sears Canada Inc % -48 Most Recent Period Previous Year Count Change Electronics & Office Pct Change Conn's, Inc % 12 hhgregg, Inc % -1 Best Buy Co., Inc. 1,047 1, % -5 Aaron's, Inc. 2,064 2, % -37 Staples, Inc. 1,919 2, % -105 Fry's Electronics, Inc % -2 Sears Hometown and Outlet Stores, Inc. 1,172 1, % -85 Interbond Corporation of America % -1 Office Depot, Inc. 1,769 1, % -227 Most Recent Period Previous Year Count Change Retail Drug Pct Change CVS Health Corporation 8,067 7, % 157 The Jean Coutu Group (PJC) Inc % 0 Rite Aid Corporation 4,560 4, % -12 Walgreens Boots Alliance, Inc. 8,192 8, %

17 Who s Opening, Who s Closing 17 Most Recent Period Previous Year Count Change Apparel & Footwear Pct Change Boot Barn Holdings, Inc % 43 Lululemon Athletica Inc % 65 Francesca's Holdings Corporation % 81 Carter's, Inc % 89 H&M Hennes & Mauritz AB 3,675 3, % 334 DSW, Inc % 39 J. Crew Goup, Inc % 41 Zumiez, Inc % 48 Tilly's, Inc % 13 Urban Outfitters, Inc % 31 Genesco Inc. 2,800 2, % 126 The Gap, Inc. 3,751 3, % 157 Shoe Carnival, Inc % 10 Express, Inc % 16 The Cato Corporation 1,370 1, % 27 The Buckle, Inc % 8 Citi Trends, Inc % 8 L Brands, Inc. 3,003 2, % 32 Brown Shoe Company, Inc 1,207 1, % 2 Ascena Retail Group Inc. 3,895 3, % -1 The Men's Wearhouse, Inc. 1,748 1, % -12 Chico's FAS, Inc. 1,546 1, % -11 Foot Locker, Inc. 3,419 3, % -41 The Finish Line, Inc % -9 Pacific Sunwear of California, Inc % -9 New York & Company, Inc % -8 Destination XL Group, Inc % -7 American Eagle Outfitters, Inc. 1,068 1, % -24 Christopher & Banks Corporation % -14 Children's Place Retail Stores, Inc. 1,085 1, % -32 bebe stores, inc % -6 Gymboree 1,315 1, % -40 Le Chateau Inc % -7 Abercrombie & Fitch Co , % -35 Destination Maternity Corp % -21 Claire's Stores, Inc. 2,926 3, % -112 Danier Leather Inc % -4 Lands' End, Inc % -15 Reitmans (Canada) Limited % -68 Aeropostale, Inc , % -228 Most Recent Period Most Recent Period Previous Year Count Change Mass Merchandisers Pct Change Dollar Tree, Inc. 14,038 5, % 8,756 Five Below, Inc % 69 Dollarama Group Holdings L.P. 1, % 77 Carrefour SA 10,860 10, % Cents Only Stores % 27 The TJX Companies, Inc. 3,594 3, % 209 Dollar General Corporation 12,396 11, % 681 PriceSmart, Inc % 2 Meijer, Inc % 9 Costco Wholesale Corporation % 26 Walmart Stores, Inc. 11,554 11, % 398 Walmart de Mexico y Centroamerica 3,004 2, % 100 Bi-Mart Corporation % 1 Big Lots, Inc. 1,463 1, % -33 Variety Wholesalers, Inc % -11 Fred's, Inc % -43 Target Corporation 1,805 1, % -129 Sears Holdings Corporation 1,687 1, % -144 Army and Air Force Exchange Service 2,440 3, % -660 Most Recent Period Previous Year Previous Year Count Change Housewares Pct Change Container Store Group, Inc % 8 Kirkland's, Inc % 23 Williams-Sonoma, Inc % 23 Bed Bath & Beyond Inc. 1,520 1, % 14 Restoration Hardware Holdings, Inc % -1 Pier 1 Imports, Inc. 1,053 1, % -20 Rent-A-Center, Inc. 2,697 2, % -144 Tuesday Morning Corporation % -44 Kitchen Collection, Inc % -15 Count Change Home Improvement / Building Materials Pct Change Tractor Supply Company 1,465 1, % 104 RONA Inc % 14 The Sherwin-Williams Company 4,048 3, % Lumber Company % 3 Lowe's Companies, Inc. 1,846 1, % 9 The Home Depot, Inc. 2,270 2, % 6 Fastenal Company 2,647 2, % 0 True Value Company 4,472 4, % -22

18 Bankruptcies & High Yield Debt Bankruptcy filings have been pared, thanks to strong securities markets, low interest rates, and slightly improving economy that have allowed more companies to refinance and push out debt maturities. According to Bankruptcydata.com, 2015 saw nearly 14% fewer corporate bankruptcies (29,839) than in 2014, a year which had the fewest since at least 1980, and the sixth consecutive year bankruptcies have declined. However, public company bankruptcies did increase to 79 from 54 in 2014, due to a jump in oil & gas, mining and related sectors. California, Texas, New York and Florida were again the states with largest percentage of bankruptcies in 2015 (40%). Puerto Rico bankruptcies rose in the fourth quarter, to represent 3.6% of all bankruptcies due to the fiscal problems in the territory; Puerto Rico is attempting to get legislation passed to allow it to restructure its debt. The Services industry had the largest share of bankruptcies again in 2015, representing 34.7% of filings, while Retail Trade represented 11.3%, led by Eating and Drinking places, with 10% of all filings. Haggen, Inc., Fresh & Easy, A&P, Wet Seal, Radioshack, Cache, City Sports, Quicksilver, Team Express, Anna s Linens, Simply Fashion Stores, Fredericks of Hollywood and American Apparel filed in started off with Joyce Leslie. & Hancock Fabric. Sports Authority possibly next. High yield market saw a pullback of about 5% in 2015 (first loss since 2008) amid concerns over the energy sector, large outflows and uncertain global growth. Spreads widened with yields surpassing 8%, compared to around 7% at the end of The trailing 12-month (Nov) default rate of 2.8% is about half the long-term historical average; defaults are expected to increase in 2016, particularly among energy issues Moody s predicts over 3%,. Defaults could increase following surge in high yield issuances during 2008 credit crisis, due to rising rates and refinancing risk. 18

19 Credit Ratings D or Lower Company Name Current Credit Rating Le Chateau Inc. F2 LRI Holdings, Inc. F2 99 Cents Only Stores F1 Body Central Corp. F1 Danier Leather Inc. F1 Fairway Group Holdings Corp. F1 Nebraska Book Company, Inc. F1 Pacific Sunwear of California, Inc. F1 Sears Holdings Corporation F1 The Sports Authority, Inc. F1 Associated Materials, Inc. E2 BlueLinx Holdings Inc. E2 The Bon-Ton Stores, Inc. E2 Gymboree E2 Hastings Entertainment, Inc. E2 School Specialty Inc. E2 Sears Canada Inc. E2 SED International Holdings, Inc. E2 Tops Holding II Corporation E2 Aeropostale, Inc. Builders FirstSource, Inc. Claire's Stores, Inc. Colabor Group Gander Mountain Company Gordmans Stores, Inc. HD Supply, Inc. Ignite Restaurant Group J. Crew Goup, Inc. Kitchen Collection, Inc. Sears Hometown and Outlet Stores, Inc. Southern States Cooperative, Inc. Systemax Inc. Toys R Us, Inc. US Foods, Inc. Company Name Current Credit Rating Emery-Waterhouse Company (The) D2 EVINE Live Inc. D2 Harbor Wholesale Grocery Inc. D2 Huttig Building Products, Inc. D2 Interline Brands, Inc. D2 J.C. Penney Company, Inc. D2 Neiman Marcus, Inc. D2 Taiga Building Products Ltd. D2 Unified Grocers, Inc. D2 United Hardware Distributing Co. D2 84 Lumber Company Albertsons Companies At Home Corporation Bloomin Brands, Inc. CanWel Building Materials Group Ltd. Chef's Warehouse, Inc. Destination Maternity Corp. hhgregg, Inc. Lands' End, Inc. Lumber Liquidators Holdings, Inc. Modell's Sporting Goods Pro-Build Holdings, Inc. Rite Aid Corporation Sportsman's Warehouse, Inc. SUPERVALU Inc. Trans World Entertainment Corporation 19

20 Strategic Intelligence Thank You! Presenters: Michael Blackburn Dennis Cantalupo Senior Vice President COO x x110 mikeb@fdreports.com dennisc@creditntell.com Lawrence Sarf CEO (800) x102 larrys@fdreports.com Steve Dove President, F&D Reports (800) x121 steved@fdreports.com Kevin Slack President, Creditntell.com (800) x103 kevins@creditntell.com 20 This financial information is compiled from sources which Information Clearinghouse Incorporated, 310 East Shore Road, Great Neck, NY 11023, does not control and unless indicated is not verified. Information Clearinghouse, its principals, writers and agents do not guarantee the accuracy, completeness or timeliness of the information provided nor do they assume responsibility for failure to report any matter omitted or withheld. This report and any/or part thereof may not be reproduced, and/or transmitted in any manner whatsoever. Any reproduction and/or transmission without the written consent of Information Clearinghouse is in violation of Federal and State Law.