There’s a lot of tension in the retail sector ahead of Christmas. This isn’t unusual. Of course retailers get nervous before Christmas. It’s the biggest part of their year. If they mess it up, they stand to lose a lot of money. And of course, their lobby group, the British Retail Consortium, is always on the lookout for a chance to paint as bleak a picture as possible, in the vain hope of twisting the Bank of England’s arm into an interest rate cut or two.
But although I think next year will be miserable for retailers, I wouldn’t be surprised if Christmas is perfectly reasonable rather than the calamity many might be predicting. Why? Well, before I explain, let’s turn to what’s happening in the US… We’ve been discussing the (more than likely) forthcoming US recession here for quite some time. Now concerns over the threat of a major downturn are starting to hit the mainstream.
In this morning’s Times , Gary Duncan highlights a recent gloomy research report from Merrill Lynch’s David Rosenberg. Obviously there’s the house price slump and oil prices taking off to worry about. But it’s quite sobering to see the impact that these have already had on corporate profits. Almost all US companies have reported their third quarter earnings now, and according to Standard Poor’s, it’s not looking good.
Typical earnings per share fell 8.9% on last year, and 12.4% quarter-on-quarter. “But what about employment?” is what the optimists - including one analyst I was chatting to on Friday - always say. But - as I’ve pointed out before - employment is a lagging indicator. By the time employment data turns down, we’re already in trouble. And as Mr Rosenberg flags up, that may already be the case.