Retail giants raise US consumer concerns

Feb 24, 2020, 403 views

In the ups and downs of the unstable process of economic expansion in the USA, the consumer may have been the only consistent driver of growth, spending money at a rate that was constantly increasing.

In the broader data, no real signs of change have yet emerged in this scenario, thanks to the support provided by employment, the residential market and the price of gasoline. However, consecutive lukewarm results by retail giants - Walmart and Target - suddenly bring the possibility of cooling consumer spending. At the very least, the results provoke questions among observers of the economy.

"The US has enjoyed consumer-driven expansion and any slowdown in retail sales or a change in consumer behavior requires careful examination," said Thomas Majewski, managing partner at Eagle Point Credit Management. "When the biggest retailer's end-of-year sales are flat compared to the previous year, it is fair to say that this is a warning sign." On the other hand, he recalled that recorded a 20% revenue increase in the same period.

So far, neither Walmart nor Target have mentioned major concerns about the consumer environment. Instead, they attributed the disappointment in sales to one-off factors, such as a shorter Christmas shopping season, poor choices of goods, and a lack of desirable items in categories like toys and electronics. Walmart already tries to put the bad memories of the last quarter in the past and warned this Tuesday that February started with good sales.

There are other signs of consumers' financial health. The real estate market is firm, with sales skyrocketing and construction permits reaching the highest level since 2007. At the same time, the continued strength of the labor market helps to sustain an 11th year of economic expansion.

Still, concerns persist. US retail sales increased in January for the fourth consecutive month, but a sub-indicator that excludes food services, auto dealerships, building supply stores and gas stations remained unchanged after a sharp downward revision in December. The performance of the so-called control group is more closely linked to the underlying demand and includes electronics, personal care and clothing stores. That group suffered the biggest drop since 2009 last month.

Consumer spending is helping to boost the economy, while other areas, such as the manufacturing industry, are running out of steam. Thus, any weakening is a sign that economic growth in the U.S. in the first quarter may cool from the 2.1% pace of the previous period and fall below President Donald Trump's 3% annual target. Analysts say the end of interest rate cuts, the forthcoming presidential election and the effects of the coronavirus epidemic in China can also weigh on consumer confidence, jeopardizing the longest economic expansion on record.

"Are we starting to see cracks in US consumer spending?" Asked Brian D. Yarbrough, an analyst at Edward D. Jones, during an interview. "What really happened during the New Year and why was the consumer not spending?"

Sales of the main gift categories increased by just 0.2% in the U.S. between November 3 and December 28 compared to the same period last year, according to NPD data tracking, with remarkably slow demand for garments and toys. Consumers, especially the younger ones, show concern about the environmental impact caused by the accumulation of products and increasingly prefer to spend their wages on experiments - which do not arrive in packaging.

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