A Majority of Economists Think There Will Be a Recession by the 2020 Election

How’s the Economy Doing?

Better than you might expect, and worse than you might have hoped, according to the National Association of Business Economics.

According to the organization’s latest survey of 53 professional economic forecasters, the consensus is that the economy will continue to grow at a 2.6% pace in 2019, down from last year’s 2.8% rate, and will slow to 2.1% in 2020. However, as the outlook for this year still seems good, a majority think a recession is possible before the next presidential inauguration.

Personal spending remains a bright spot. “The consumer continues to be the driver in the U.S. economy,” said Jack Kleinhenz, chief economist for the National Retail Federation and one of the analysts of the report. “Real personal consumption expenditures for 2019 is 2.4% year-over-year growth. It was 2.6% in 2018.”

But not all is good. “There are really headwinds in the housing market in terms of residential investment,” Kleinhenz said about this important “piece of the consumer equation.” The group expects that residential investment in 2020 will be down 1.3% from 2019’s levels. Because home prices have risen, particularly in the lower third of housing stock, many are now priced out of the market.

More than half of the panel said “the greatest downside risk is trade policy and increased protectionism,” Kleinhenz said. The thorny issue is a major driver of the possibility that growth could collapse by the end of next year. Right now, only 15% of the participants expect a recession in 2019. But by the end of 2020, the number rises to 60%. Because the November election is in the last quarter, if the majority of predictions are right, a recession would begin by then.

Only 35% thought that when the group surveyed its members in March. And these results do not fully take into account the escalated trade war situation. “Since the survey was done between May 6 and 14, 2019, the panelists could not take into account the most recent proposal by President Trump to impose a series of tariff increases from 5 to 25 percent on Mexico,” said Stephen Miller, director of the UNLV Center for Business and Economic Research at the University of Nevada, Las Vegas. “This significantly raises the uncertainty in international markets and would significantly lower the growth forecasts that are reported today as well as increase the projected likelihood of a recession.”

That drives up the chances that CEOs and CFOs could be “hesitant to spend their ample retained earnings gained over the last number of years,” said Benjamin Pace, chief investment officer and partner at Cerity Partners. “This hesitancy could slow economic growth to a trickle and even provoke recession sooner than one needs to occur based on the current strong shape of the US consumer.”

ERIK SHERMAN

FORTUNE

June 4, 2019

Tinier tax refunds hurt ritzy shops more than discounters

Lower, slower income tax refunds that have dragged on retail sales this year are disproportionately hurting upscale stores, since high-income shoppers are more likely to get an unexpected bill from the Internal Revenue Service under changes backed by President Trump and congressional Republicans.

February revenue at U.S. retailers fell 0.2 percent from the month before to $506 billion, the Census Bureau said Monday, and merchants placed much of the blame on cold weather, stock market fluctuations, and shrinking refunds after a GOP-led tax overhaul that eliminated or cut many of the deductions once claimed by people earning $100,000 a year or more.

Those changes, and Treasury Department efforts to buoy take-home pay through adjustments to withholding tables, left some taxpayers getting little to no money back from the IRS and often having to make surprise payments.

The total number of payouts issued so far this year is down 2.6 percent from the same period in 2018, according to IRS data, and the amount has dropped 2.9 percent to $191.9 billion. The refunds have already become a talking point in the 2020 presidential race, and a CNN poll last year showed the tax bill — which granted a large break to businesses — dragged on Republicans in the 2018 midterms when voters gave Democrats a majority in the House of Representatives.

“We see the most risk to households in the upper-income demographics, particularly those that live on the coasts, as they likely get impacted” by limits on state and local tax deductions, said Michael Lasser, an analyst with Swiss lender UBS. That weighs on retailers such as Restoration Hardware and Williams-Sonoma, while leaving discount stores such as Walmart unfazed, he said.

It’s “something that we’re watching closely,” Jack Preston, senior vice president for finance at Corte Madera, Calif.-based Restoration Hardware, told investors and analysts last week. “We’ve heard anecdotes of people being surprised with the tax bills as they prepare their tax returns.”

Overall, however, store owners remain optimistic about the rest of 2019, according to the National Retail Federation, which represents businesses contributing $2.6 trillion a year to the U.S. economy. The group’s chief economist, Jack Kleinhenz, noted that original estimates for January sales were revised upward and that online merchants saw gains compared with both the previous month and February 2018.

“The consumer has not forsaken the economy as some previously claimed,” he said in a statement. “We still expect growth to pick up, fueled by strong fundamentals like job and wage growth.”

The jobless rate remained at 3.8 percent in February, near a 50-year low, and average hourly pay grew 3.4 percent to $27.66, according to the Bureau of Labor Statistics.

Washington Examiner

Booming jobs market is leaving the retail industry behind

  • Despite strength in jobs from manufacturing to medicine, retail is one of just two sectors that have lost jobs over the last few years.
  • Since January 2017, retail has lost more than 140,000 jobs; the sector added to those losses in March 2019, according to Labor Department data.
  • “Retail is a sector where automation has been particularly present,” said PGIM’s Nathan Sheets. “U.S. consumers have manifest over many years that they want low prices, even if that means less help from workers on the floor.”

Though many American industries have ramped up hiring in recent years amid a strong economy and easier regulations under President Donald Trump, one sector in particular has lagged the rest: retail.

Since January 2017, retail has lost more than 140,000 jobs; the sector added to that in March 2019 with a loss of more than 11,000, according to Labor Department data. The sector is one of just two industries that have lost jobs over the last few years, according to data tracked by CNBC.

For example, an aging baby boomer population has fueled employment in the health-care industry, while the post-crisis business sector has supported the addition of tens of thousands of jobs per month. The government’s Friday report on the employment situation showed the health care sector alone added 61,000 jobs in March, while the business industry tacked on another 37,000.

Despite strength in jobs from manufacturing to medicine, retail is one of just two sectors that have lost jobs over the last few years. Since January 2017, retail has lost more than 140,000 jobs; the sector added to those losses in March 2019 with a loss of more than 11,000, according to Labor Department data.

The lukewarm performance in the retail sector have come despite a broader economic groundswell, with Trump’s corporate tax cuts giving businesses a balance sheet boost, goosing GDP growth above the rate many economists feel is sustainable.

The utilities sector, the only other to have seen a net decline in jobs since 2016, employs less than 1 million people. Retail employs more than 15 million.

Automation effect

Theories on the employment softness range from analyst to analyst, most agree that the downtick in the number of people working at big-box retail locations has to do with the rise of e-commerce and technology.

“Broadly speaking, retail is a sector where automation has been particularly present. Self-checkouts are now common. If you’re not sure about a price, you scan the bar code rather than asking a worker,” Nathan Sheets, chief economist at PGIM Fixed Income.

As an example the thriving shift toward automation at retailers nationwide, Walmart announced earlier this year that it is expanding its “Scan & Go” technology to an additional 100 locations across the U.S. For consumer staples like groceries that customers still don’t feel comfortable purchasing online, Kroger’s new “Scan, Bag, Go” platform will allow shoppers to scan their items themselves and allow the chain to cut cashiers at 400 locations.

Gap, Victoria’s Secret, J.C. Penney, Tesla and Abercrombie & Fitch have all announced that they’ll be closing locations in 2019; 4,810 store closures had been announced by retailers by March 2019, according to Coresight Research.

The push toward automation checkouts comes as major retailers and supermarkets come under pressure to generate even more profit out of a razor-thin margin business while offering customers a unique shopping experience.

“As a related point, the ongoing shift in retail from bricks and mortar to online very much reinforces this trend. For online sales, you largely eliminate customer-facing employment,” Sheets added. “U.S. consumers have manifest over many years that they want low prices, even if that means less help from workers on the floor.”

Perhaps emblematic of the struggles of some retailers to keep up in the modern era, the October bankruptcy filing of Sears Holdings represented for many economists a key moment in the shift toward a leaner business model.

Others, like National Retail Federation chief economist Jack Kleinhenz suggested that the government data may not suggest a decline in retail business, but rather a shift in the types of people they employ.

“You could now have a major retailer that owns a warehousing and distribution center, and products never go through a store,” Kleinhenz said. “There has been improvement in productivity and the use of technology. I caution us to be unnerved by these numbers at this point in time.”

“The retail industry is actually in sync with the economy and is growing at a pace that is appropriate, but we have to broaden our scope” of how we measure it, he added.

Instead of employees lining up at brick-and-mortar store locations, the rise of e-commerce is driving demand for transportation and warehousing staff. A current driver shortage beleaguers the trucking industry thanks to a combination of low compensation, burdensome schedules and conditions of the job.

But amid a new generation of consumers accustomed to smartphone shopping and two-day shipping, retail demand for storage square footage is soaring. Some savvy investors, such as Blackstone’s Jonathan Gray, have actually poured money into the warehousing business in an effort to preempt the broader trend and capitalize off the scaling need for space.

Gray told CNBC in July that the firm had purchased more than 550 million square feet of warehousing since 2010.

“As you think about investing, you’re trying to think about sort of where the puck’s going to, what’s happening. We came to a simple view that online sales were going to grow,” Gray said from the Delivering Alpha Conference in New York in 2018. “As a result, we’ve seen this pickup in demand for warehouse space, which traditionally was a pretty boring business.”

“In an environment where it’s hard to invest, finding things you have high conviction in, where you think there’s going to be growth – that’s a pretty good strategy,” he added.

Retail Industry Employment Dropped Again in March

According to numbers released last week by the Department of Labor, retail is one of the few industries losing jobs in a generally stable economic climate.

Retail employment in March was down by 11,700 jobs, seasonally adjusted from February, and down 47,400 jobs unadjusted year-over-year. The United States saw a monthly gain of 196,000 jobs overall (across all industries) in March.

National Retail Federation (NRF) chief economist Jack Kleinhenz, for one, said the numbers don’t paint an accurate picture of the industry. In a statement from the NRF, the economist said the overall growth in employment “paints a picture of resiliency of the U.S. economy” and that “consumer confidence and consumer spending were down earlier in the year, so the retail numbers likely reflect merchants’ hesitancy to add to payrolls under those conditions.”

That may be, but it’s notable that retail has posted job losses for three solid months: Since January 2017, the industry has lost more than 140,000 jobs (including 18,500 jobs in February), according to the Department of Labor.

A confluence of factors is impacting retail’s job growth, say industry watchers. Among them is the downsizing of retail—led by the continued closing of big box and department stores—and an increase in automation, which may be shifting retail’s jobs away from stores and into technology and other back-of-house jobs.

Kleinhenz told CNBC, “You could now have a major retailer that owns a warehousing and distribution center, and products never go through a store. There has been improvement in productivity and the use of technology. I caution us to [not] be unnerved by these numbers at this point in time.”

Overall unemployment in March was 3.8 percent, unchanged from February.

 by EMILI VESILIND

JCK the Industry Authority

No, Online Sales Aren’t Beating Brick-And-Mortar Retail

There are three types of lies: lies, damn lies and, apparently, retail statistics.

A recent U.S. Department of Commerce retail report showed non-store sales eclipsed general merchandise sales by a narrow margin in February, a first in the history of the government agency tracking such data. News reports on the data said e-commerce had trumped brick-and-mortar retail for the first time. But hold up, retail experts say. Most peg e-commerce to account for between 10% and 12% of all retail sales, with brick-and-mortar making up the rest. Experts Bisnow spoke to unanimously agreed on the recent wave of triumphant e-commerce headlines: fake (retail) news.  “The best way to explain it is describing your car and only talking about the tires,” JLL Americas Retail President and CEO Greg Maloney said. “It’s a total misrepresentation of general retail sales and zeroing in on something insignificant that doesn’t tell the story in order to glorify a headline.” The problematic reporting stems from how the Department of Commerce labels retail categories. Non-store sales include online sales, but the category also includes other retail sectors like vending machines and mail-order catalogs. General merchandise, despite the widespread-sounding term, is only a portion of brick-and-mortar sales and excludes automobile sales and food and beverage transactions. Comparing general merchandise to non-store sales as a proxy for brick-and-mortar retail to e-commerce transactions isn’t a fair fight. “Non-store sales are not a true measure of pure e-commerce sales,” National Retail Federation Chief Economist Jack Kleinhenz said. “This just suggests more work needs to be done in better understanding data and what these terms mean.”

The Commerce Department also revises the numbers each month, and there is a good chance the razor thin margin (non-store sales were 11.813% of sales compared to general merchandise’s 11.807% of February retail sales) will change in favor of the brick-and-mortar subset, according to Kleinhanz.  “The way it was reported is misleading, and it makes some people scared,” Bialow Real Estate CEO Corey Bialow said. “By no means are online sales surpassing brick-and-mortal retail sales.”  Bialow, who is the exclusive broker for digitally native men’s suit brand Indochino across the U.S., still estimates about 12% of all retail sales are made online. But he and other retail experts expect the figure to grow in coming years as younger generations gain more purchasing power.  That doesn’t mean the growth will lead to the total demise of brick-and-mortar retail. Plenty of sales made on retailers like Best Buy or Lululemon’s websites were because customers tried the products out in stores first. It just means an omnichannel presence, both online and brick-and-mortar, will be key to courting customers.  “Brick-and-mortar is still an integral part of the online shopping experience,” Bialow said. “Amazon aside, most retail sales are being done by omnichannel retailers.”

The overlooked part of the Commerce Department report is how brick-and-mortar and online sales are converging, according to those Bisnow spoke with for this story. Digitally native brands are expanding into brick-and-mortar venues and vice versa. That movement fuels confusion in the retail industry in how sales get reported.  An omnichannel retailer like Target can easily categorize sales made online and delivered directly to customers separately from an in-store purchase. But experts aren’t as clear on the reporting of purchases made online but that are picked up in-store or when a customer goes to a brick-and-mortar showroom for a digitally native brand like Indochino or Bonobos for a fitting and makes a purchase but the delivery comes from the same last-mile warehouse used for e-commerce sales.  “It’s so cloudy and convoluted that I wish we could get away from all this,” Maloney said. “In the end, it’s all retail sales.”

April 9, 2019 Cameron Sperance, Bisnow Boston

NRF: RETAIL SALES RECOVERED IN JANUARY

Retail News

 The numbers exclude automobile dealers, gasoline stations and restaurants.

“Retail sales recovered in January after the unexpected drop in December, reinforcing a positive start to 2019,” says Jack Kleinhenz, chief economist, NRF. “American consumers regained confidence as concerns over the government shutdown and stock market volatility faded and trade talks moved in a positive direction. Although some hesitancy is still lingering, it is good to see consumer spending showing traction given the concerns on the minds of American families last month. We expect higher wages and low unemployment to continue to promote consumer confidence in the year ahead.”

As of January, the three-month moving average was up 2.7 percent over the same period a year ago. The January numbers follow an unexpected revised 0.1 percent drop in December year-over-year. November (the first half of the holiday season) grew 5.1 percent unadjusted year-over-year.
NRF does not count October as part of the holiday season, but much holiday shopping has shifted earlier, and October was up 5.7 percent year-over-year.

“Retail sales in December were revised even lower, but these figures remain suspect given the reporting delays caused by the government shutdown,” says Kleinhenz. “The January rebound further calls into question the accuracy and reliability of the December data. The processing of the delayed data is still unclear, and the volatility of the figures reported is difficult to explain at this point.”

The results come as NRF is forecasting that 2019 retail sales will grow between 3.8 percent and 4.4 percent to more than $3.8 trillion. The forecast will be monitored and subject to revision as more data is released in the coming months.

NRF’s numbers are based on data from the U.S. Census Bureau, which reported that overall January sales, including auto dealers, gas stations and restaurants, were up 0.2 percent seasonally adjusted from December and up 2.3 percent unadjusted year-over-year.

Specific retail sectors during January include:

  • Building materials and garden supply stores were up 10.4 percent year-over-year and up 3.3 percent month-over-month seasonally adjusted.
  • Online and other non-store sales were up 6.3 percent year-over-year and up 2.6 percent month-over-month seasonally adjusted.
  • Grocery and beverage stores were up 4 percent year-over-year and up 1.1 percent month-over-month seasonally adjusted.
  • General merchandise stores were up 3.2 percent year-over-year and up 0.8 percent month-over-month seasonally adjusted.
  • Health and personal care stores were up 2.4 percent year-over-year and up 1.6 percent month-over-month seasonally adjusted.
  • Clothing and clothing accessory stores were up 2.1 percent year-over-year but down 1.3 percent month-over-month seasonally adjusted.
  • Furniture and home furnishings stores were down 2.5 percent year-over-year and down 1.2 percent month-over-month seasonally adjusted.
  • Electronics and appliance stores were down 3.2 percent year-over-year and down 0.3 percent month-over-month seasonally adjusted.
  • Sporting goods stores were down 6.2 percent year-over-year but up 4.8 percent month-over-month seasonally adjusted.

March 18, 2009

License News

U.S. retail-sales data go dark at a tough time for investors

U.S. Commerce Department/Bloomberg

The U.S. growth outlook hangs more than ever on American consumers’ resilience amid stock-market swoons and trade-war tensions, but key data on their spending — the biggest part of the economy — will be missing due to the government shutdown.

Was it a gangbusters Christmas shopping season as forecasts and anecdotal evidence suggested? Were consumers making big discretionary purchases in addition to essential spending as they entered 2019, even as some surveys showed confidence was waning? The answers will have to wait, as December retail sales won’t be released as scheduled Wednesday, Jan. 16, while the Commerce Department remains closed. Failure to reopen soon also would delay personal income and spending data, due Jan. 31.

Together, those reports constitute the most widely watched measures of household consumption, which accounts for about 70% of the economy. The disruptions come at a challenging time: Plunging regional gauges of U.S. manufacturing and business surveys indicate a slowdown in growth, and some big-name retailers have issued warnings about mixed holiday results.

While the solid job market remains a bulwark and consumers are in good shape, more — not less — information is needed to assess if the economy faces bigger-than-anticipated risks, one reason investors are nervous and Federal Reserve officials have emphasized patience in raising borrowing costs.

With no end in sight for the shutdown, a burgeoning concern is that data may not just be delayed, they may also not get collected as normal, Brown said.

For now, investors and analysts will have to rely on a patchwork of data. The Johnson Redbook report showed December sales rose from a year earlier, though it tracks a limited sample of results. The Retail Economist‐Goldman Sachs weekly chain-store sales figures are another source. Other groups provide clues on individual sectors, such as the National Restaurant Association’s monthly index.

The delay in government-issued economic releases “introduces a greater degree of uncertainty, which typically isn’t good,” said Jim Paulsen, chief investment strategist at Leuthold Weeden Capital Management LLC. “It does create some real risk of misinterpretation” as people compensate with other, sometimes partial, sources of information, like a retail CEO’s comments.

The nuances in signals from consumers were evident in executive comments from Kroger Co., America’s biggest supermarket chain.

“They feel incredibly good about the economy but very nervous about where things are headed,” Chief Executive Officer Rodney McMullen said Sunday in an onstage interview at the National Retail Federation’s annual trade show in New York.

Credit-card results from companies including Visa and MasterCard would help fill some of the void. The Fed’s Beige Book release on Wednesday may also provide anecdotal details on spending and other parts of the economy. That’s why some investors are taking the data disruptions in stride.

Bloomberg

“In a world of big data, there are so many other ways to get a view of the consumer than the monthly numbers from the Commerce Department,” said David Sowerby, portfolio manager at the investment firm Ancora, which manages $6.9 billion.

E-commerce sales during the holiday season jumped 16.5% from a year earlier, according to Adobe Analytics, which measured online transactions from 80 top U.S. retailers.

No instruments

Still, companies depend on broader economic data to make investment decisions, and without it they’re “to a degree, flying without any instruments,” said NRF chief economist Jack Kleinhenz.

The Commerce Department’s monthly data are crucial to get a bigger picture because about 90% of retail sales come from small businesses, he said. Recently, several large publicly traded retailers such as Macy’s Inc. and Kohl’s Corp. provided discouraging updates.

“It was disappointing news, but I don’t know how pervasive that performance was,” Kleinhenz said.

The trade association itself is somewhat in the dark until the government releases the data. Without official numbers, “we can’t provide our final report this week either” on holiday spending, according to NRF spokeswoman Ana Serafin Smith.

Nearly 1 in 8 Jobs Added in November in Retail, Says Report

A good chunk of the jobs created in November were in retail — likely to keep up with holiday sales — says the National Retail Federation.

Employment in retail was up by 18,600 jobs in November, seasonally adjusted from October, said the Federation. That means that of 155,000 jobs created in the overall economy last month, nearly one in eight were in retail.

Calling the retail jobs numbers “satisfying,” the federation’s chief economist, Jack Kleinhenz, said in a statement that the boost came during and after the wildfires in California and bad weather in other areas of nation, all of which likely dragged on the sector.

The numbers were a good sign, given the context of the overall economic and national picture, he said.

“In retail, the tight labor market has created sizable challenges in hiring – there are actually more retail jobs available than there are people to fill them. Retailers would hire more workers if they could find them,” said Kleinhenz, in a statement.

Still, compared to last year at the same time, unadjusted retail employment dipped by 16,300 jobs, said the group.

And, the Department of Labor, in its job report, noted that “retail trade employment changed little” in November, noting that most of the jobs created were in health care, manufacturing, transportation and warehousing.

The total employment numbers across all sectors released Friday by the Labor Department were considered a disappointment by many, as projections were for a bigger boost.

The jobless rate for retail was 4.2 percent; the unemployment rate overall remained unchanged at 3.7 percent.

Of the total positions in retail in November, most were at department stores, warehouse clubs and other general merchandise shops, while the rest were at a variety of merchants and in online sales. Many jobs were lost at sporting goods, hobby, electronics and appliances stores, according to the federation.

The group predicts up to $721 billion in retail sales over this holiday season.

Stocks are plummeting, but a U.S. recession doesn’t look imminent

Consumer sentiment has remained strong all year despite political head winds and market jitters.

Washington Post

By Heather Long
December 4
Alarm bells sounded on Wall Street this week as something happened that hasn’t occurred in a decade: The U.S. yield curve inverted. This is one of the most reliable predictors of a recession, and it spooked investors enough to send the Dow down almost 800 points (along with the realization that President Trump’s trade “deal” with China is flimsy, at best).

But this doesn’t mean a recession is happening tomorrow or even in 2019.

Roughly 70 percent of the U.S. economy is powered by consumer spending. As long as consumers are happy and opening their wallets, the economy will keep growing, and right now, consumers are in very good shape.

Here’s what happened Monday: The yield (amount of interest) on the two- and three-year U.S. Treasury bonds moved above the yield on the five-year Treasury bond. Inversion is when a short-duration bond yield is suddenly worth more than a long one.

“A flattening yield curve traditionally has been seen as a sign that investors expect future growth to weaken,” Vincent Heaney, Jon Gordon and Chris Swann of UBS wrote in a client note. “An inverted yield curve is seen by some as an early warning sign of an impending recession.”

[Trump has won little from China so far. There isn’t an ‘incredible’ deal yet.]

As UBS noted, this is an early warning sign, and it could take years for the recession to materialize. Consider that the three-year bond yield moved above the five-year in August 2005, yet the Great Recession didn’t begin until December 2007.

According to many Wall Street analysts, this week’s inverted yield curve isn’t a reason to panic but is another sign that the U.S. economy is probably peaking. Growth is widely expected to slow somewhat next year and even more so in 2020.

How much and how quickly the economy tapers is going to depend on U.S. consumers.

“This is the most confident American consumers have been in 18 years,” said Lynn Franco, director of the team that produces the Conference Board’s Consumer Confidence Index. “Just on holiday gifts, consumers plan to spend around $627 this year versus $560 last year, one of the strongest jumps we’ve seen.”

U.S. household incomes are rising as more people find jobs, and wage growth is at the highest nominal level in nearly a decade. More than 2.7 million more Americans are employed now vs. a year ago, the biggest gain since 2014. In many communities, people see visible signs of the economy’s strength when they view so many “We’re hiring!” signs around town. Franco says good job prospects are a key driver of consumer sentiment.

Consumer sentiment has remained strong all year despite political head winds and market jitters. People appear to be focusing on their own improving financial situations and not the headlines.

“Consumers have been pretty accurate forecasters of a recession,” Franco said. “There is usually a sharp decline in expectations for the future, followed by a decline in how consumers view the present situation.” But she said she’s not seeing that now.

On top of job and wage gains, many Americans have more money in their pockets from tax cuts. The typical middle-class household, earning $49,000 to $86,000 a year, received a $900 tax cut this year, according to the nonpartisan Tax Policy Center. Earlier this year, there were concerns that higher gas prices were eating up a substantial chunk of the tax savings as families had to shell out more money at the pump, but gas prices have fallen sharply in recent weeks and are now at a lower level than they were a year ago, according to the U.S. Energy Information Administration. It’s another factor helping consumers feel better off and making them likely to spend more.

“The recent drop in retail gasoline prices is poised to lift disposable income in the coming months,” said Neil Dutta, head of Renaissance Macro Research. “Disposable income is the main driver of consumption.”

[1 million Americans live in RVs. Meet the ‘modern nomads.’]

The brighter mood and fatter pockets of U.S. consumers are helping boost retail sales, according to Jack Kleinhenz, chief economist at the National Retail Federation. He expects retail sales to grow at least 4.5 percent this year, which would be the largest gain since 2014. His figures don’t include spending on gas or restaurants, so they are a good barometer of how much Americans are spending online or in brick-and-mortar stores.

If there’s a head wind for consumers, it’s debt. Household debt — mortgages, student loans, auto loans, home-equity lines of credit and credit cards — has now topped $13.51 trillion, which is above the previous peak from 2008, just before the worst of the financial crisis hit. Student loans often get the most focus since nearly 1 in 5 adults have some sort of student debt. Experts say it’s a clear hindrance, but they are encouraged that credit card and mortgage debt remain in check this cycle.

“People are using credit in a prudent way. They aren’t loading up on their credit cards,” Kleinhenz said. He pointed out that household debt as a percent of household income is low by historical standards.

An early warning sign could be car loans. Auto loans that are 90 days delinquent just hit the highest level since early 2012, according to New York Federal Reserve data. Auto loan delinquencies have steadily risen in the past six years, even as the economy has improved. It is a likely indication that lower-income Americans are still struggling, even though many states and the nation’s two largest employers — Walmart and Amazon.com — have lifted their minimum wages.

But Dutta of Renaissance Macro Research pointed out that disposable income has been rising 3.1 percent in the past five years while consumption has risen 3 percent, meaning a lot of people are living within their means. Dutta said that is a “dramatic departure” from the late 1990s and early 2000s, when consumption outpaced income by a sizable amount.

This week’s inverted yield curve is a reminder that the economic head winds at home and abroad are picking up. But experts say to watch the consumer for the best gauge on the U.S. economy’s health. So far, most signs point to ongoing strength.

US retail stocks on track for biggest sell-off since 2008

Investors turn negative in spite of bullish Christmas sales forecasts

Shares in US retailers are on course for their biggest quarterly sell-off since the financial crisis, putting the sector at the sharp end of Wall Street’s mounting concerns about the global economy and President Donald Trump’s trade wars. In a sudden reversal of the cautious optimism that had crept in this year over the industry’s ability to cope with the ecommerce revolution, S&P’s index of 95 leading listed retailers has dropped 17 per cent so far this quarter.

The market downturn has gathered pace just as the festive shopping season gets into full swing, in spite of a series of upbeat predictions about Christmas sales. Jack Kleinhenz, chief economist at the National Retail Federation, has nudged his forecast for the holiday period higher after commerce department figures on Friday showed core retail sales surged in November by the most in a year. Investors said the sell-off, which puts the sector on track for the steepest quarterly decline since the final three months of 2008, reflected worries about gathering storm clouds for retailers next year. Luxury, middle market and budget retailers have all been hit hard. S&P 500-listed losers include upscale jeweller Tiffany, down 36 per cent for the quarter so far, and mass market chain Target, off 23 per cent. Concerns include retailers being forced to shed stock at hefty discounts, in part because they have accelerated shipments through ports to avoid being subjected to higher tariffs, which the Trump administration has since put on hold. Chad Kessler, global brand president at American Eagle Outfitters, said rivals were still being “pretty promotional” since the Black Friday sales. “It seems like a lot of retailers have kind of maintained their Thanksgiving week promotions through the month so far,” he said. Even companies thought to have successfully weathered the rise of Amazon have been caught up in the rout, including electronics retailer Best Buy, which is down 30 per cent. The sell-off has erased all gains from earlier this year, when investors drove a rally in retail stocks on signs that a strong US economy and tax cuts were helping bricks and mortar companies deal with the online threat. “People went from saying the mall is dead to the mall is back with a vengeance,” said Simeon Siegel, analyst at Instinet. “The reality is that it never died — but it was also never as healthy as people thought.” The US economy remains robust and Mr Kleinhenz now anticipates retail sales for the season to come in at the high end of the National Retail Federation’s previously issued forecast of a year-on-year rise of 4.3-4.8 per cent.

However, Michael Arone, chief investment strategist at State Street Global Advisors, said: “Investors are concerned more about the longer-term outlook for retail — and the broader structural trends, such as the shift online.” Weak economic data from Europe and Asia — figures on Friday showed retail sales in China grew at the slowest pace in 15 years in November — have meanwhile added to fears about a global downturn. Analysts also pointed to concerns that trade tensions would force US retailers to either risk volumes by raising consumer prices or absorb higher costs themselves, especially if higher tariffs were implemented next year. Executives have sought to reassure investors that they can minimise the impact on profits. Jack Calandra, chief financial officer of men’s clothing company Tailored Brands, said last week it was halving the proportion of products it sourced directly from China from 30 per cent to 15 per cent. Shares in Amazon have dropped 20 per cent for the quarter so far, paring its market capitalisation to $778bn. S&P’s Select Retail Index is equal-weighted, meaning the decline in Amazon’s stock has not had an outsized impact.

Alistair Gray

Financial Times