TEST: We are entering the strongest period of consumer spending of the year, and the most profitable one for retailers. But this year is a big test. Consumers have been spending down pandemic savings. Inflation is high and has turned real wage growth negative. Stock market and housing ‘wealth effects’ have plunged. The support is generational low unemployment. The likely result is a halving of Christmas spending growth vs last year, but to still healthy levels equivalent to $834 per household. The consumer drives 70% of the US economy and is the biggest anchor for global growth. Discretionary stocks have been some of the weakest this year.
ANCHOR: Christmas spending is expected to pull back from last year’s record 13.5% growth to between 6-8% this year (see chart) according to US National Retail Federation. This would still be above the long-term average 4.9% Christmas growth rate, as savings and especially credit are used to bolster spending. Investors have already voted with their feet. Consumer discretionary stocks and themes (@ShoppingCart. @FashionPortfolio) have been among the worst performing this year. This gives room for some relief to a less-bad spending season.
TRENDS: Consumer spending trends have been changing significantly. Shifting away from goods and towards services. Downtrading to cheaper goods and formats. Discount retailers now rank ahead of Department Stores in Christmas spending popularity. Online spending is seen outperforming again, growing 10-12%. Retailers restocked earlier, given supply chain concerns, and on forecasts shoppers would start earlier to spread budget pressures. 50% have done so.
All data, figures & charts are valid as of 07/11/2022