Best Buy customers illustrate Bernanke's caution
(Bloomberg) -- Best Buy Co., whose electronics make it a barometer of discretionary spending, is opening its U.S. stores an hour earlier than usual this holiday season in a bid to win over consumers battered by job losses.
Shoppers are "episodic" and "operating on cues from the broader environment," Best Buy Chief Executive Officer Brian Dunn told analysts Sept. 14. "Many customers are being highly selective about when they spend their money."
With the unemployment rate at a seven-month high of 9.8 percent and a quarter of U.S. homes worth less than their mortgages, consumers are holding back spending until occasions such as Thanksgiving and Christmas, said Scot Ciccarelli, an analyst at RBC Capital Markets in New York.
"The episodic consumer is becoming even more apparent," said Robert Yerex, chief economist for Kronos Inc., a closely held Chelmsford, Massachusetts-based maker of payroll and hiring software for retailers and other businesses. "Unemployment is really holding back the recovery."
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Even as Americans are poised to boost holiday spending by the most in four years, according to the National Retail Federation, short-lived gains underscore Federal Reserve Chairman Ben S. Bernanke's concern the recovery may not be sustainable.
"The unemployment rate is just not going down," he said in an interview broadcast this month by CBS's "60 Minutes" program.
The number of jobless climbed to 15.1 million last month, signaling a reluctance by companies to boost hiring, and hours worked and earnings stalled, a Labor Department report showed last week.
"As long as the consumer remains under pressure, you are going to continue to see this more episodic [consumer spending] behavior."
Consumer spending accounts for about 70 percent of the world's largest economy, and the holidays generate about 30 percent of annual revenue for retailers. Stores started discounting earlier than in recent years in a grab for sales before Black Friday, the day after Thanksgiving and the biggest shopping day of the year.
"There's going to be a very late concentration of buying right around Christmas and right afterwards," Ciccarelli said, who rates Best Buy as his "top pick." "This doesn't mean we are off and running for 2011. As long as the consumer remains under pressure, you are going to continue to see this more episodic behavior."
Best Buy shares climbed 2.9 percent so far in the fourth quarter before today. For the year, the stock had advanced 6.4 percent. The company will report third- quarter earnings Dec. 14. Analysts predict profit of 60 cents a share, the average of 23 estimates in a Bloomberg survey.
The Federal Reserve said Dec. 1 that the economy gained strength in 10 of 12 districts as hiring improved, manufacturing expanded and retailers anticipated a stronger holiday shopping season. At the same time, several districts noted that households remain price sensitive and focused on buying necessities, according to the Fed's Beige Book report, which is based on anecdotal information.
The Fed has kept its target rate for overnight loans between banks at a record-low range of zero to 0.25 percent since December 2008.
"All the evidence we've seen so far does point to a decent increase in spending over the holiday sales," said Paul Dales, a U.S. economist at Capital Economics Ltd. in Toronto. "I don't think it will move the Fed from its current course by too much."
