It has been a tough year for American consumers. Inflation everywhere. Rapidly rising interest rates. A housing market that is starting to cool off. That begs a question with the holidays right around the corner: Are shoppers finally tapped out?
We'll get a better sense of that this week.
There is a LOT of data coming out in the next few days that will give important clues about the health of the economy. Beyond a slew of retail earnings reports, the government will report retail sales figures for October on Wednesday. Economists are forecasting a monthly jump of 0.9%. Sales were unchanged in September, a possible sign that inflation was taking its toll on consumers.
But the most recent Consumer Price Index figures for October provided some relief for shoppers...and Wall Street. The pace of year-over-year price increases slowed more than expected, sparking a massive stock market rally Thursday.
Several major retailers are also on tap to report their results for the latest quarter...and potentially give outlooks about sales for the next few months. Walmart, Target, TJ Maxx and Marshalls owner TJX, Macy's, Kohl's and Gap are all on the earnings calendar for this week.
The Fed's relentless rate hikes over the past few months have pushed credit card rates to all-time highs. So it will be costlier than ever for many consumers looking to buy gifts this year with their Visas and Mastercards. Black Friday, after all, is less than two weeks away.
Consumer spending rose 1.4% during the third quarter, according to the government's most recent gross domestic product (GDP) report. That is still decent growth, but it's a slowdown from the first and second quarters.
Inflation finally hurting sales? The big question facing retailers is whether or not they are able to keep raising prices. So far, consumers have (perhaps begrudgingly) continued to spend despite any sticker shock. It helps, of course, that wage growth has remained fairly robust.
"Retailers have been able to pass on rising producer prices to consumers and maintain solid markups over cost," said economists at Moody's in a recent 2023 outlook report.
The Moody's economists added that the still healthy labor market is one reason that consumer demand trends "have remained inordinately resilient."
Retailers clearly need some good cheer around the holidays. Consumer stocks have been hit hard this year due to inflation worries and recession fears, plunging even more than the broader market.
The SPDR S&P Retail ETF, a fund that has Victoria's Secret, Abercrombie & Fitch and Gap among its top holdings, is down more than 25% this year.
Still, some experts worry that retailers may continue to struggle in 2023. Consumers may eventually need to watch their wallets more closely as worries about an imminent economic downturn grow.
"What makes us cautious is earnings estimates, which in some cases are a little too high, in our view. With slowing growth, those numbers need to come down," said Matt Quinlan, a portfolio manager at Franklin Templeton, on a recent webcast.
Quinlan added that "some parts of the...consumer discretionary [sector] would be ones where earnings estimates need to be brought down a little bit more."
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