Unconventional Wisdom A Gas Price View with More Bark than Bite .pdf

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					                                                                                                                                             06 July 2011
                                                                                                                             North America – U.S.

                                  Unconventional Wisdom: A Gas Price View with
                                  More Bark than Bite for Retailers
                                  Consumers do not spend as much on gasoline as they think they do. Data from the
                                  Bureau of Economic Analysis (BEA) seen below indicate that spending on gasoline has
                                  accounted for only 4.1% of total personal spending in 2011. That is up from 3.8% in
                                  2007, but down from 5.9% in 1980.
                                  Sector                           1960 to 2011    1960    1970     1980       1990       2000       2007       2011

                                  Hous i ng and Uti l i ti es                     17.1% 16.8% 18.1%          18.2%      17.6%       17.8%      17.8%

                                  Heal th Care                                     4.9%    7.3%     9.7%     13.2%      13.4%       14.9%      16.3%

                                  Other Servi ces                                  8.2%    8.4%     7.2%       7.9%       8.7%       9.0%       9.0%

                                  Other Nondura bl es                              8.2%    8.2%     7.4%       7.4%       7.8%       7.7%       8.2%

                                  Fi nancia l Servi ces                            4.1%    4.8%     5.4%       6.7%       8.3%       8.4%       7.8%

                                  Grocery Stores                                  18.9% 15.9% 13.7%          10.3%        7.9%       7.5%       7.8%

                                  Res ta ura nts a nd Hotel s                      6.2%    6.5%     7.0%       6.9%       6.0%       6.1%       6.1%

                                  Ga sol i ne                                      4.8%    4.0%     5.9%       3.0%       2.9%       3.8%       4.1%

                                  Recreati on Servi ces                            5.5%    5.7%     4.5%       5.3%       5.1%       4.0%       3.6%

                                  Motor Vehi cles a nd pa rts                      2.0%    2.2%     2.3%       3.2%       3.7%       3.8%       3.4%

                                  Cl othi ng and Shoes                             7.9%    7.0%     5.9%       5.2%       4.1%       3.5%       3.2%

                                  Recreati ona l Goods                             1.9%    2.7%     2.6%       2.7%       3.4%       3.4%       3.2%

                                  Tra ns porta ti on Servi ces                     2.8%    3.1%     3.2%       3.3%       3.9%       3.1%       2.9%

                                  Furni s hi ngs                                   4.7%    4.3%     3.8%       3.1%       3.0%       2.8%       2.5%

                                  Nonprofi t Cons umpti on                         1.6%    1.7%     1.9%       2.1%       2.4%       2.6%       2.5%

                                  Other Dura bles                                  1.3%    1.4%     1.5%       1.7%       1.6%       1.5%       1.5%
Patrick J. O’Hare
Chief Market Analyst              Source: BEA; Briefing Research                    Note: Red dots on spark lines indicate highs for the respective series.

Briefing Research is an
                                  In brief, consumers feel as if they are spending so much more on gasoline because:
independent investment research
group with a concentration in     1. They purchase gas more frequently than other items or services.
macro, thematic, and
nonconsensus research.            2. They literally see the cost differential standing at the pump and get constant          reminders from gas station placards as they drive around town. Inc.                 3. They are bombarded with media reports covering the rising cost of gasoline and
401 N. Michigan Ave
Suite 2910                        4. Rising gasoline costs are a common burden and an easy topic of conversation for
Chicago, IL 60611

                                  06 July 2011                                                                                              Page 1 of 2
                                                                                North America – U.S.  Retail

               Gas prices can be a lot like a middle child in that they only seem to get extra
               attention when they are doing something bad. On that note, they have been getting
               a lot of attention of late, eclipsing a nationwide average of $4.00 per gallon in early
               Since then, however, average gas prices have declined for seven consecutive weeks
               to $3.631 per gallon — a move that has been owed partially to demand destruction
               and worries about a slowdown in the global economy. True to form, the attention
               paid by the media to that move has not been nearly as great as it was when gas
               prices went from $3.65 per gallon to $4.00 per gallon in the five-week span
               beginning March 28.
               The pullback in gas prices can be thought of as a positive development at the
               margin for retailers in that consumers will now likely have more disposable income
               than they previously thought they would have when the rise to $4.00 per gallon gas
               stoked fears it was on a straight line to $5.00 per gallon gas.
               Still, as indicated by the data, gas price trends will not be the sole determinant of
               spending decisions or the sole determinant of sales and earnings prospects for the
               A pullback in gas prices can only help, but just as the concerns about rising gas
               prices are overblown on the way up, their salutary effect on the way down should
               not be overstated either.
               All else equal, income trends that are fed by a multi-faceted economic environment
               will be the real macro force contributing to sales and/or earnings surprises for
               It is remarkable that many retailers have fared as well as they have in expanding
               sales and profit margins with unemployment levels where they are today. Arguably,
               then, they still have ample room to run on both fronts given that there is so much
               room for improvement in the labor market which can, and will, drive welcome
               gains in aggregate income when it turns.
               All else is rarely equal, though, so the deciding factor will be whether management
               teams are equal to the task of managing their businesses effectively to deal with
               headwinds like rising gas prices, higher input costs, a weak housing market, and
               high levels of unemployment.
               So far, so good… so say the data.

06 July 2011                                                    Page 2 of 2

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