Retail Analysis: Good Growth Making A Soft Landing?

Even though the lights are packed away and the tree has been stripped bare, Santa brought one last gift to investors today. New data shows holiday shopping was more robust than Wall Street had expected. The U.S. Commerce Department reported retail sales rose 0.9% in December, that’s the strongest increase in 5 months. CNBC’s “Squawk on the Street” had the instant analysis and explained why there was particular strength in drug store sales.

Some economists think the data released today suggests the economy is heading more for a soft landing than a recession. Andrew Wolf, Food and Drug Retail Sector Analyst for BB&T Capital is one of them. He told CNBC, “What’s really interesting is when you look inside the sectors. I think it is consistent with a soft landing because interest sensitive sectors, auto and housing, that’s where the softening was. And as you look inside the report less interest sensitive sectors did pretty well.”

Within the retail sector, the electronics companies finished the year a little bruised. They experienced 15% year over year growth but profits were down, in large part because of flat panel TV’s. “There were more markdowns than expected to move the product but the product moved,” explained Wolf.

Food stores (otherwise known as supermarkets) had a very strong showing. “Food store sales were up about 5%.” added Wolf as he explained this is the first time, in a long time, where the number of supermarkets has been down year over year. “So we’re beginning to see some healthy consolidation.”

Who's the big winner? It looks like drug stores. “The drug store sector is up 9% (year over year). "There’s been a lot of acceleration there because Medicare Part D shifted a lot of business into the drug stores." (Part D transferred about 6.2 million patients from Medicaid over to Medicare and boosted prescription sales in drug stores.) As a result, “There’s very good demand in drug stores,” concluded Wolf. “And there’s been very little new unit growth in that sector so the supply/demand relationships are very good.”