No Love for Retail Spending This Valentine’s Day

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Feb 14, 2020 2:49:45 PM

and tagged Commentary

Leave a comment

retail spendingThis morning, I stopped to get a card and balloon for my son for Valentine’s Day. I was shocked—once again—at how much the greeting card companies have monetized our need to be loving parents, spouses, and so forth. With these kinds of prices, you would think retail spending would have soared last month. Think again.

Retail spending on the rocks?

Apparently, however, everyone else procrastinated to the last minute as well, as the actual numbers for last month were not that great. Oh, the headline number was pretty good, with a 0.3 percent increase that was in line with expectations. But that number was largely flattered by an increase in building material sales, likely due to unusually warm weather. When you look at what is known as the “control group sales”—a better indicator of underlying consumer behavior, which excludes autos, gas, and building materials—sales were flat. As such, this result was much weaker than the expected 0.3 percent increase, and previous readings were revised downward. Plus, economically sensitive areas like clothing, electronics, and health and personal care all were down. This report raises a question as to how sustainable strong consumer spending growth will be.

That question is all the more urgent given a rare decline in spending in the fourth quarter. Along with this month’s result, the decline takes the quarter-on-quarter growth rate down to –0.7 percent in January. This result is a significant drop from last year. If it holds, it will indicate that consumer spending, the backstop of the recovery for the past 10 years, may be starting to flag. If that is the case, then growth is likely to slow even more in 2020 than in 2019.

Where is this relationship going?

Mind you, it’s too early to panic. Looking back to last year at this time, I said the following:

“One thing I do want to comment on, however, is the terrible retail sales report this morning. The headline index was down 1.2 percent. Plus, last month’s number was revised down from 0.2-percent to 0.1-percent growth. Today’s result was well below the expected gain of 0.1 percent. When you look further into the details, the sales ex-autos was down 1.8 percent, down from flat, and the sales ex-autos and gas was down 1.4 percent from growth of 0.5 percent. This is a big swing on a monthly basis, and the weakness is broad based among subcategories.”

As it turned out, of course, consumer spending growth picked back up, and we had another year of growth in 2019. What helped us then will also help us now: continued job growth, along with confidence that is at higher levels than was the case back then. And, of course, the January 2020 report was much more positive overall than the 2019 report. The likelier course is that consumers step back up to the plate on spending.

Still, the fact that spending appears to be pulling back on a multimonth basis, even as consumer confidence remains high and housing recovers, suggests that spending is something that is not as healthy as had been assumed. It is not time to panic, but it is time to be watchful.

Much love to the American consumer

It never makes sense to react to one data point, and that is where we are right now. With a healthy headline number and with job growth and housing doing well, there are multiple positive trends in place. You almost never lose money betting on the American consumer. Almost never is not the same as never, however, so I will be paying more attention to retail spending going forward. Just in case.

Upcoming Appearances

Tune in to Bloomberg Radio's Bloomberg Businessweek on Friday, February 28, at 3:45 P.M. ET to hear Brad talk about the market. Stream the show live at https://www.bloombergradio.com/, listen through SiriusXM 119, or download Bloomberg's app, Bloomberg Radio+.

Tune into Yahoo Finance's The Final Round on Thursday, March 12, between 2:50 and 4:00 P.M. ET to hear Brad talk about the market. Exact interview time will be updated once confirmed. Watch at finance.yahoo.com

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®