The holiday season is upon us and for many reasons, the shopping season should be healthy and jolly. Why? Positive statistical data augers fatter wallets from an economy building momentum:

  • Job gains have been climbing with an positive surprise last month of 271,000 jobs created and a lower employment rate now at 5%.
  • Wages are up .4% for private payrolls and the latest report from the Bureau of Economic Analysis (BEA) shows that real disposable personal income is up 3.5%, compared to 1.2% for the previous quarter.
  • Consumer sentiment[2], reported by the University of Michigan, also agrees with positive expectations; it has improved over last month to 90 from September’s 87.2 and is higher in 2015 than any year since 2004. The Consumer expectations measure showed the greatest advance with a 3% improvement compared to October 2014.

And now for Some Coal

Despite these highlights, retail sales look weak just as we enter the last part of November. Friday’s report of a .1% uptick in consumer purchases was much lower than the expectations for a .3% monthly increase. As a reaction to this Retail Sales reading, retail stocks that had been struggling dived. Macy’s, which reported slack earnings earlier in the week, slumped and is now down almost 40% this calendar year. Nordstrom is also lower by 32% since January 2015. As of the November13 market close, the retreat for the department stores is a negative sign for the crucial pre-Christmas period:

Month to date as of Market Close November 13th:

Dillards has retreated -13%

JC Penny is down by -23%

Macy’s is down -22%

Nordstrom is lower by -21%

Where are Consumers Spending?

The news is not all bad and with the consumer more solvent it appears that expenditures are devoted to homes, cars, and furnishings. Purchases of big-ticket items after years of pent up demand are taking the place of most apparel purchases with Furnishings and Footwear (think Nike and Footlocker) as bright spots. Purchasing behavior also demonstrates a transition to internet buys with Amazon as the greatest beneficiary. And with greater spending power, people are eating out and traveling more (Darden Restaurants, McDonalds and Trip Advisor have all moved up quite smartly.)

What to Watch

Evidence indicates that Americans may prefer saving more rather than spending. According to the BEA report, the savings rate has steadily increased and is now at 4.7%. Anecdotal evidence also indicates that consumers are somewhat hesitant to purchase. Since consumer spending comprises almost 70% of GDP, the magnitude of a shopping pause is worrisome.

It remains to be seen if this holiday season consumer reticence will be a “pause that refreshes” or the beginning of a slowdown in growth. Whatever the verdict, it appears that the American way of spending money has shifted to favoring experiences such as travel over goods.  And when Americans shop, they are preferring internet retailers over a shopping experience in a department store. It is also possible that the most important purchases are all big ticket items (homes and cars) leaving less to spend on soft goods.  Whatever the outcome of the holiday season, be assured that will keep you informed regarding the state of the consumer and other important issues affecting the stock market.




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