As the main source of power for the U.S. economy, the recent slowdown in the consumer market may cool economic growth. This, combined with recent signs of weak sales by large U.S. retail companies, has added some uncertainty to the holiday shopping season that starts this Friday. .
Retail sector showing signs of weakness
According to a report on the Spanish “Economist” website, in the United States, large retail companies and stores reflect the core conditions of the economy. They are a leading indicator of consumption, which is particularly important in the United States because personal consumption accounts for nearly 70% of the country’s gross domestic product (GDP). Large U.S. retailers Walmart, Target and home improvement retailer Home Depot recently warned that a recession appears to be entering their doors.
Walmart Chief Financial Officer John David Rainey said in the earnings report that the company began to show signs of weakness in October this year. The warning signal sent its shares down as much as 7% intraday, the most in about a year, even as the company raised its profit forecast slightly.
That shows uncertainty about consumer spending, even as the company steals sales from many competitors. Walmart said shoppers have shifted their spending toward essentials and groceries instead of discretionary purchases. “Customers are showing caution and making trade-offs in order to be able to afford what they want while prices for what they need continue to be high,” Rainey said.
Target said: “Overall, consumers are continuing to spend, but pressures such as high interest rates, the end of student loan moratoriums, rising credit card rates and reduced savings have left consumers with less discretionary income, forcing them to give up. Some shopping behavior.”
Target’s comparable sales fell 4.9%, its second consecutive quarterly decline and second-largest decline since 2009, according to Bloomberg data. Target warned that a similar situation will be seen in the final period of the year, and the indicator is expected to continue to decline.
Home Depot made the same prediction. “What we are seeing is a continuation of the trend throughout the year, which is that large-ticket purchases have decreased. Customers continue to focus on smaller purchases.” William Bastyk, Home Depot’s executive vice president of marketing, introduced the results. explain.
According to Reuters, although the United States is experiencing peak consumption periods such as Thanksgiving, “Black Friday” and Christmas, due to fierce competition and hundreds of various preferential measures, it may ultimately have an adverse impact on the retail industry, especially In the case of reduced consumption behavior.
According to the US Consumer News and Business Channel (CNBC), Adobe Analytics data shows that promotional discounts on clothing, home appliances, computers and other categories of products in the United States in October this year are much higher than in 2021 and 2022. For example, the price of online clothing shopping dropped by 9% throughout October this year compared with the beginning of the month, but in the same period in 2021 and 2022, it only dropped by 2% and 5% respectively.
Data from GlobalData also supports Adobe’s findings. The company said that the average discount on clothing, home furnishings, electronics, toys and games, sporting goods and beauty products in October this year was as high as 24.1%, much higher than the 16.7% in 2019 and the 12.9% in 2021. According to reports, deep discounts during this year’s end-of-year shopping season in the United States are expected to hit a record high, a trend that indeed shows that consumers are becoming increasingly cautious and retailers are taking measures to stimulate demand and maintain competitiveness.
Consumer spending begins to cool
Some analysts pointed out that although the United States is about to usher in the holiday shopping season headed by “Black Friday”, with rising credit card interest rates, reduced savings, and the recovery of student loans, the outlook for consumer spending and retail sales remains unclear. The National Retail Federation believes that the above-mentioned unfavorable factors will hinder sales growth.
Data recently released by the U.S. Department of Commerce showed that U.S. retail sales fell by 0.1% month-on-month in October, which was lower than the market consensus of 0.3%. It was the first decline since March this year, indicating that U.S. consumer spending has begun to cool down. Data show that retail sales in October, excluding data from automobile and parts dealers and gas stations, increased by 0.1% month-on-month. During the month, 7 of the 13 retail sales categories declined month-on-month. Among them, the sales of automobile and parts dealers fell by 1% month-on-month; the sales of furniture and home furnishing stores fell by 2%; the sales of miscellaneous store retailers fell by 1.7%; and the sales of gas stations also fell by 0.3%.
According to AFP, a survey released by Deloitte shows that American consumers are expected to spend an average of US$1,652 during this holiday shopping season, an increase of 14% over last year. But growth among middle-income shoppers is expected to be much smaller due to a number of factors. “This group is likely to feel the shift in student debt more than other income groups,” said Brian McCarthy, one of the survey’s authors. “Coupled with a stagnant housing market, this makes them the most burdensome right now.” “In addition, according to the National Retail Federation’s forecast, U.S. holiday online and physical store sales in November and December are expected to increase by 3% to 4%, the lowest growth rate in five years. An estimated 132 million Americans plan to shop at pre-holiday sales like Black Friday and Cyber Monday in 2023, up from an estimated 140 million shoppers last year, according to a report from fintech firm Finder.
Slowing inflation may bring benefits
The high inflation that has plagued the U.S. economy, consumers and retailers in recent years eased in October. The latest data released by the U.S. Department of Labor showed that the U.S. Consumer Price Index (CPI) in October was unchanged from the previous month, rising 3.2% year-on-year, a significant slowdown from September. In October, core CPI, which excludes volatile food and energy prices, rose 0.2% month-on-month, with the growth rate declining from the previous two months.
Walmart CEO McMillon recently said that as prices for general commodities and staple foods such as eggs, chicken and seafood decline, the U.S. economy may face deflation during the holiday shopping season in the coming months. McMillon said on the earnings call that the U.S. economy will experience a period of deflation in the next few months, which will put pressure on retailers, but will also help consumers increase their shopping.
Bloomberg economists Anna Wang and Stuart Paul believe that the “unexpectedly weak” core CPI in October will increase the Fed’s confidence that interest rate levels are restrictive enough. However, core CPI data will need to continue this downward trend in the coming months before the Federal Open Market Committee, which sets monetary policy, will clearly declare the end of the interest rate hike cycle.
The Federal Reserve will hold its last monetary policy meeting of the year on December 12-13. According to CME’s “Fed Watch”, the probability that the Federal Reserve will keep interest rates unchanged in the range of 5.25%-5.50% in December is 100%. The probability of keeping interest rates unchanged until February next year is 100%. The probability of a cumulative 25 basis point interest rate cut by March next year is 30%, and the probability of keeping interest rates unchanged is 70%.
Cleveland Fed President Loretta Mester said on the 16th that the Fed has made progress in fighting inflation, but more evidence is still needed to prove that inflation is returning to its target level. Cutting interest rates is not yet on the table for the Fed. The key now is whether the Fed needs to keep interest rates at restrictive levels for how long.