NEW YORK, Nov 25 – Investors are closely watching U.S. retail stocks to gauge consumer confidence in the face of inflation as the biggest shopping season of the year kicks off on Friday.
Consumer discretionary stocks, as measured by the S&P 500 consumer discretionary sector — the group of companies that benefit from spending on retail, restaurants and vacations — are down 32% so far this year, more than double the 15.5% drop in the broad S&P 500, as consumers have been hit by rising inflation and the biggest rise in interest rates since the 1970s.
“These values are an indication of how fast the economy is slowing and whether slowing inflation is lifting business sentiment,” said Jim Paulsen, chief investment strategist at Leuthold Group.
US consumer prices rose at a slower pace than economists had expected in October, bringing the annual increase below 8% for the first time in eight months and helping to spur a rally in the US stock market. in general, with the hope that inflation has finally reached its ceiling, after hovering around the maximum of the last 40 years.
Collectively, the National Retail Federation, a trade association, expects holiday sales, including online shopping, to rise 6% to 8% to between $942.6 billion and $960.4 billion during November and December. This figure would be lower than the 13.5% increase recorded last year and 9.3% in 2020.
Retailers, for their part, began unusually early discounts this year to lure consumers.
Target Corp, Kohls Corp, and Amazon.com Inc all ran so-called Black Friday early deals — as the day after Thanksgiving is known — that discounted toys and some other items by up to 50%.
Even with deep discounts, however, consumers will have to spend more for popular products like the PJ Masks toy car or Mattel Inc.’s Mega Hauler semi because prices have risen faster than sales, according to data provided by DataWeave. .
The attempts to lure shoppers come as the University of Michigan’s survey of consumer confidence, a key benchmark, was revised higher on Wednesday from 54.7 to 56.8, beating the analysts’ average expectation pointing to 55.0, but still below the 59.9 level of the October index. Long-lived manufactured goods purchase expectations fell 21% due to high interest rates and high prices, according to the survey.
“Confidence data has been sliding sideways as consumers try to reconcile strong economic and labor market conditions with expectations of a recession and damaging inflation,” said Thomas Simons, economist at Jefferies LLC.
Retailers have struggled to adjust their offerings as consumers fully recover from the coronavirus pandemic, leaving some businesses with excess inventory.
Walmart Inc, for example, raised its full-year sales and profit forecasts as demand for food was expected to hold up despite rising prices. Target, for its part, forecast a sudden drop in sales for the holiday quarter.
Walmart shares are up 7.5% so far this month, while Target is down 1.2%.
Department store Macy’s Inc. raised its full-year profit forecast last week. Shares of the company are up nearly 12% so far this month. Kohl’s, for its part, withdrew its forecasts as demand weakened due to higher prices. The company’s shares are up 6.7% so far this month.
Walmart, Macy’s and Kohl’s did not immediately respond to requests for comment.