Advisory Intelligence: The consumer is set for some Christmas cheer


Economic outlook presents a positive picture for the U.S. consumer.

Advisory Intelligence: The consumer is set for some Christmas cheer

Like the U.S. economy, the picture for the U.S. consumer is bright. Giving a detailed perspective on this, Josh Elman, consumer and retail analyst with Nasdaq Advisory Services, offers up an impressive list on the upbeat nature of the consumer outlook in the U.S market. ‘The markets are at record highs and if you look at the employment side of the picture, the unemployment rate is at 4.1 percent, which is very low. We are starting to see additional evidence of wage inflation, and credit growth remains healthy.’

‘The Federal Reserve, while on a path to raise interest rates, is still very accommodative. And confidence numbers from the government and the University of Michigan have been very strong of late.’ Furthermore, according to a bevy of surveys, there is real evidence of a pick-up in manufacturing. ‘The current state of the U.S. consumer is healthy, which is a strong signal for the upcoming holiday season,’ sums up Elman.

Although, have the recent hurricanes had an impact on this rosy picture? ‘The unfortunate hurricanes did put a dampener on things from a retail perspective. But it seems we have moved passed them, if you look at the September sales data, which showed some healthy growth,’ notes Elman. ‘That said there could be some residual noise from the hurricanes.’

So given this overall positive picture, what seems to be the key trends and perspectives for the holiday season? ‘Retailers in general should be excited for the holiday season as they are well prepared and positioned to meet customer needs from an in-store and e-commerce perspective,’ says Elman.

Nasdaq Advisory Services hears from many consultancy groups this time of the year analyzing trends, and interestingly, most are predicting a solid holiday season, with some saying growth between 3.5 and 4 percent. ‘The general sentiment for the holiday season seems to be a strong one,’ notes Elman.

Additionally, the calendar this year is highly favorable to the retail sector compared to 2016 due to the full weekend just before Christmas, helping retailers significantly.

Digging down on 2017 consumer stock performance, Elman presents a mixed and multilayered picture. ‘Some subsectors of the consumer space have been performing very well, while others have been languishing: the space generally remains pretty volatile as investors try to figure out how the retail shake-out will end in terms of positioning and consumer preferences.’

‘That said, if you look at the broad retail category, overall, we have seen green shoots, especially around the second quarter of earnings. Restaurants’ – which fall under the consumer umbrella – performance has also been mixed. But quick service restaurants have performed well. Leisure has been a solid performer, beverages have been pretty good and household products have been holding up. One weakness in the consumer channel has been the food space, which has been under some pressure.’

There are also political factors to keep in mind coming from Washington. ‘Earlier in the year we had a lot of talk about the implication of a border adjustment tax, which was an overhang on the space in general, with retailers lobbying against it. The tax ultimately fell through and removed some of the perceived uncertainty from a consumer spending point of view.’

Then there is the consolidation and M&A activity that has shaped the consumer environment. ‘We have seen a real uptick in consolidation this year in the consumer space,’ notes Elman. ‘Obviously there have been some transformative deals that dovetail with consumers’ changing preferences. We have seen traditional brick-and-mortar retailers beef-up their e-commerce operations through acquisitions.

‘And we have seen dominant players in e-commerce try to move into brick and mortar. So consolidation is at a high level in the consumer space. We have seen consolidation not just from M&A, but also consolidation from bankruptcies and store closures, as retailers and restaurants try to right-size the landscape. And we have e-commerce players who have had more of an impact on the space overall, as the channel continues to gain strength.’

Therefore, what will 2018 look like from a consumer perspective? ‘We believe that the first few months will focus on whether the holiday season delivered was it strong? Did it have some weakness? Time will tell with that,’ says Elman.

Also tax reform will be on the forefront of everyone’s minds. ‘You will also have the battle between rising rates versus increased inflation, which will ultimately have an impact on the overall consumer: so it will be interesting to see how the Fed navigates that – and the trickle down impact on the consumer,’ notes Elman.

And the stock market has had an unbelievable bull run. ‘One of the things we are looking at is whether that can continue. The theme of consolidation will continue. Then there is the possibility of a government shutdown in December, which could have an impact on holiday spending. And don’t forget about the debt ceiling debate early next year – which could have an impact, too.’



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