The fiscal cliff is causing a drag on the economy and, in particular, the desire of consumers to want to spend. The reality is that the budget cuts and tax increases will impact spending regardless of how the deal turns out, as taxes will rise.
The push to extend the Bush-era tax cuts to only those making below $250,000 appears to be a pipe dream of President Obama.
So far, after several failed attempts at a compromise, the Republican-controlled House is looking to push forth what they call “Plan B,” which extends the Bush-era tax cuts to those making less than $1.0 million. President Obama suggested he would veto Plan B, which would likely not get approval in the Democratic-controlled Senate. Obama has moved up the threshold for the tax cuts to $400,000, up from $250,000.
So while this deal-making goes back and forth, consumers are likely to be hesitant to spend in the retail sector. The headline retail sales reading rose 0.3% in November, which was below the Briefing.com 0.6% estimate, but up from -0.3% in October. The ex-auto reading was flat, lower than the Briefing.com 0.2% estimate. While the November retail sector numbers don’t translate into December, I’m sensing the uncertainty of the fiscal cliff will impact consumer spending during this key shopping season for the retail sector.
A strong shopping season will also go a long way toward helping the retail sector and economic recovery.
The two recent jobs reports added some optimism to the retail sector; albeit, I doubt it will be enough to drive consumers to the malls and online to spend. We need to see progressive and stronger job creation going forward to instill some confidence in shoppers. In the best-case scenario, if job creation rises, this would likely translate into higher sales in the retail sector.
Retail sales have increased in three straight years, according to the National Retail Federation (NRF), and the hope is that 2012 will continue the uptrend.
The monthly retail sales numbers in the retail sector are showing some encouraging signs. The Thomson Reuters Same Store Sales Index (comprising 17 U.S. retail chains) increased 1.6% in November, below the 4.3% estimate, due to the impact of Hurricane Sandy.
I’m seeing some optimism returning to consumers. Consumer confidence in November came in at a four-year high of 73.7, versus 73.1 in October, according to the Conference Board. The reading is encouraging, but it’s still well below the widely accepted reading of 90 that indicates a healthy economy, and this hasn’t materialized since December 2007, when the recession began. It looks like it will be some time until the confidence reading heads back up to a normal level.
The reality is that when consumers are more confident, they tend to spend more on major purchases in the retail sector, such as homes, vehicles, furniture, appliances, and travel. This spending then impacts gross domestic product (GDP) growth and the ability of companies to expand their businesses. The worries surrounding the fiscal cliff will likely impact spending.
The reading for durable goods orders on an ex-transportation basis for October came in at 1.5%, better than the -0.5% Briefing.com estimate, but below September’s 1.7% growth.
The bottom line is that the ongoing debate on the fiscal cliff will likely hamper December retail sales at a time when the retail sector needs consumers to spend.
Consumer Spending: What Could Spell Disaster for it this Season was last modified: December 21st, 2012 by George Leong, B.Comm.
George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »
Forecasts Aug. 31, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 31, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)