The consumer front hasn’t seen many encouraging signs in the last year or so. The big issues remain unresolved: Unemployment is persistently high, housing markets remain battered and there’s a general fear of more hard times to come.
Most investors have become immune to a lot of these major trends, adjusting their expectations to a “new normal” where the benchmark is significantly less impressive than in previous years.
However, just because you’ve set the bar lower doesn’t mean consumers will easily jump over it. A host of disturbing headlines about consumers have cropped up recently, and they could foretell that a rather bleak holiday shopping season is in store for retailers and the broader market:
Wages and Income Still Flat
For starters, it’s worth admitting the news hasn’t all been bad on the spending front. Take the recent GDP report’s somewhat cheerful details, thanks to consumers. However, the most important trend here isn’t a brief and modest uptick in spending but the utter lack of increase in any real wealth for consumers.
Consider that disposable income ticked up a mere 0.1% in September, according to the Commerce Department, even though spending increased 0.6% to generate a bit of economic growth. That trend is simply unsustainable.
Separately, real hourly wages fell 0.1% in September from August. In short, consumers aren’t making any more money. They may have spent more last month than in previous periods, but unless they also start bringing home bigger paychecks don’t expect more spending growth.
Retailers Are Seeing Little Organic Growth
Generally speaking, retail stocks haven’t had a very impressive year — and it’s logical to assume that trend will continue in the fourth quarter as well. Specialty retailer Gap Inc. (NYSE:GPS) is tracking a less than 1% increase in revenue for this fiscal year and looking at a mere 2.5% increase in fiscal 2013, according to Wall Street estimates.
Department store leader Macy’s (NYSE:M) is forecast for a meager 5% gain in fiscal 2012 revenue growth and 3% in fiscal 2013. Discounter Walmart (NYSE:WMT) is projected to see revenue growth of 5% in fiscal 2012 and 5% again in 2013. The list goes on, and it’s rather uninspiring.