The economy might be faring better this year, but that does not mean Americans will be going all out this holiday season, according to the latest economic data.
US retail sales barely rose in October, thanks to lower-than-expected car sales, data released on Friday shows. Could this be a sign of gloomy sales ahead? It might be too early to say, but the news was enough to push US stock markets lower.
Wall Street fell sharply on Friday, capping its worst week since August. The Dow Jones industrial average fell 202.03 points, or 1.16%, to 17,246.04; the S&P 500 lost 22.8 points, or 1.11%, to 2,023.17; and the Nasdaq Composite dropped 77.20 points, or 1.54%, to 4,927.88.
The falls were not entirely due to retail worries; signs that the Federal Reserve is preparing to end its zero interest rate policy, in place since the recession, have also rattled investors.
“It is very risky to use retail sales as a proxy for real consumption – which is what really matters – when goods prices are falling,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “What retailers care about now, though, is holiday sales, and October’s numbers aren’t necessarily a useful guide.”
Thanks to lower gas prices, Americans should have additional room in their budgets for holiday shopping this year. Last week, the price of gas was below $2 in six US states, according to the the American Automobile Association.
“Gas prices in many parts of the country could fall below $2 per gallon by Christmas if the cost of crude oil remains low,” predicted AAA spokesman Avery Ash in September.
The low gas prices brought joy to more than just retailers, who hoped that Americans would spend their extra cash at their stores.
“Every time I go to a gas pump, I am pretty pumped up because it’s so cheap,” US labor secretary Tom Perez told the Guardian in October. The Labor Department had previously described the drop in gas prices as a “tax cut for Americans who are driving cars”.
Yet instead of spending the money saved at a gas pump in stores, Americans are spending it on ever increasing rents. According to a recent report released by the Harvard’s Joint Center for Housing Studies and Enterprise Community Partners, by 2025 about 15 million Americans will be spending more than 50% of their income on rent. In 2013, that number was 11.2 million Americans.
Even as rent prices have continued to climb, US wages have remained stuck – in 1997. According to Census data from 2014, about 46.7 million Americans live in poverty. The median household income was $53,700, meaning that US workers are earning what they were in 1997 when the median household income was $53,551.
As wages remain stagnant, department stores could continue to struggle. This month, both Macy’s and Nordstrom reported disappointing results; the stores also lowered their full-year forecasts. Kohl’s also reported a 15% drop in profit even as same-store sales rose 1%. Kevin Mansell, store’s chief executive officer, attributed the company’s performance to weakness in seasonal business.
“People’s confidence that the consumer can somehow offset this industrial recession that we’ve had is really being shaken to the core with the disappointing numbers from some of these major retailers,” said James Abate, CIO of Centre Funds.
All hope is not lost for the holiday season however.
“If job growth remains reasonably solid and the equity market doesn’t decline sharply, we would expect the consumer to hold his own in coming months,” said Joshua Shapiro, chief US economist for financial consulting firm MFR Inc. “Not an ideal recipe for holiday spending, but not likely to be a disaster either.”
