We recently learned that household debt — as defined by obligations such as mortgage and credit card payments — has reached a 17-year low. Add additional bills such as property taxes and insurance premiums, and that debt level drops to its lowest point since 1984.
Not only has the overall household debt dropped by $600 billion since 2008, but today’s low-interest-rate environment means that debts come at a lower cost. Mortgage interests, for example, are at a seven-year nadir.
With declining debt comes an increased sense of consumer confidence, which can lead to higher spending levels. Some of the money consumers once were earmarking for credit card bills or higher mortgage payments can now be used for discretionary purchases.
The result is rising retail sales. In March, sales rose 0.8% from February, nearly doubling analysts’ expectations. Year-over-year, retail sales have surged at a 5% better pace than in the 12 months preceding July 2008 — the previous peak for retail sales data.
The most sizable sales gains were seen from Internet retailers, which themselves barely noticed a blip during the worst of the recession. This sector’s market share has edged up to 7.3% from 5.7%, and group sales are up more than 30% from the mid-2008 sales peak.
Of course, the granddaddy of all Internet retailers, Amazon.com (NASDAQ:AMZN), stands to benefit from this trend if it can break through short-term resistance around the $200 level. The stock is up more than 300% in the past five years.
The worst-performing retail sector, not surprisingly, is home furnishings, which have seen collective sales drop 13% from their peak. As the real estate market remains tenuous, retail chains that benefit in the aftermath of new home sales will struggle.
Publicly traded furniture chain Haverty Furniture Companies (NYSE:HVT) is virtually unchanged during the past 12 months and is down 8% during the past half-decade. Williams-Sonoma (NYSE:WSM), which attracts many shoppers wanting to equip a new kitchen, is little changed in the past five years and has lost 10% during the past 12 months.
But while consumers might not be purchasing new supplies for their homes, they have been sprucing up the house themselves. Hardware stores and building-material dealers are recovering and have propped themselves higher after a pronounced fall.
One name from this sector that looks promising is Sherwin-Williams (NYSE:SHW), which has gained 33% so far in 2012, handily outperforming the broader market. In the past five years, SHW has risen 81% — not too shabby for a retailer of something as unsexy as paint. Technically speaking, the stock is trading in new all-time high territory, so it should not be enduring any overhead resistance.
Have you been shopping (or saving) more of late? What’s your favorite retailer to hit when you have some extra spending money?
As of this writing, Beth Gaston Moon does not own any shares mentioned here.