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Yes, Personal consumption stinks – but it reeks less than it has in prior months. Check out the chart below that Zach Brown whipped up – it’s a tough one to argue with. Personal consumption expenditures have bounced about half a percent off the bottom, but home furnishings and softlines are both up 2% over that same period. As this delta in spending gets better, and coincides with tight inventories, a favorable 300bp downshift in SG&A, and capex growth going from +12% last year to -8% in ’09. Now we've got some powerful shifts in China to kick start exports and open up capacity for lower-priced goods (esp shoes and apparel) by improving economics for local manufacturers. This shifts the balance of power back into the US supply chain as capacity opens up again, and bolsters my view that 2H09-1Q10 will show free cash flow growth revert from -80% today yy to +20%.

A Tough Visual To Argue With - American Consumer Chart

Names I like best in retail include BBBY, RL, LULU, PSS, LIZ, UA, and DKS. I don’t like those who are cutting into bone to print profit, such as Ross Stores, Gap, Iconix, Sears, Carter’s, and Jones.

For more detail, see my note from March 31 titled “Retail Narratives Don’t Get Much More Powerful Than This.”