Friday, November 27, 2020
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Expectations are high for the holiday shopping season. Will consumers disappoint?
It is Black Friday in America.
This most American of all holidays — a celebration of profligate consumer spending — marks the official start of the holiday shopping season for most retailers.
And expectations in this year like no other are high. Back in October, the Morning Brief covered work from economists at Wells Fargo who said this is set to be a record holiday shopping season.
An inability for Americans to travel and spend on many services at a normal rate left the firm expecting that sales in goods-focused categories that cover more giftable items would rise 9% during November and December.
But a resurgence in the virus, new restrictions from local governments across the country, and expectations for a grim winter ahead have started to take their toll on consumers. And risks upsetting this bullish outlook for the holidays.
On Tuesday morning, the Conference Board’s reading on consumer confidence in November unexpectedly fell, to 96.1 from a reading of 101.4 in October. Morning Consult also published its latest consumer confidence index Tuesday morning, which showed a third straight weekly decline.
“Heading into 2021, consumers do not foresee the economy, nor the labor market, gaining strength,” said Lynn Franco, senior director of economic indicators at The Conference Board. “In addition, the resurgence of COVID-19 is further increasing uncertainty and exacerbating concerns about the outlook."
And then on Wednesday, the University of Michigan’s final look at consumer sentiment in November revealed a cooling of sentiment this month with the index falling to 76.9 from 81.8 in October.
“The November data were less optimistic than last month due to the resurgence in COVID infections and deaths as well as partisan shifts due to the outcome of the presidential election,” said Richard Curtin, chief economist for the University of Michigan’s survey of consumers.
Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, added in a note to clients Tuesday that, “We suspect that the lack of a near-term fiscal stimulus package coupled with an expected slowdown in employment gains amid the nationwide surge in COVID infections is weighing on consumers’ outlook.”
Elsewhere on Wednesday, the weekly report on initial jobless claims showed that first-time filings for unemployment insurance rose for the third-straight week. As Michael Pearce at Capital Economics said following this report, “Unfortunately, it seems that underlying payroll growth slowed sharply in November.”
But even with this present slowing in the labor market both the Conference Board and the University of Michigan’s check on consumers showed fairly steady views on the current state of the economy and a sharp drop in expectations for the future.
And these dour outlooks for the coming months paired with resilient takes on the present situation sort of explain the entire last four months for the U.S. economy.
Since July, we’ve been covering calls from economists for more fiscal stimulus and arguing the same ourselves. Ending financial support for the millions who were thrust into unemployment or underemployment back in the spring is an own-goal for an economy powered by consumer spending.
Enhanced unemployment benefits and one-time payments from the CARES Act, however, were used not only to bolster spending but create a savings cushion for households that rarely have one. And these are the funds that have been drawn down through the fall while the labor market has continued to recover faster than expected.
Against this backdrop, then, perhaps concern over a holiday season that disappoints is misplaced.
Results from retailers like Target (TGT), Walmart (WMT), and Dick’s Sporting Goods (DKS) over the last few weeks certainly outline a healthy appetite for spending through the fall months. And the durability of a “better than feared” optimism from consumers broadly has been at the heart of this fall’s economic outperformance.
All of which sort of leaves the economy where it’s been for months now — both surprisingly strong and seemingly right on the edge of rolling over.
What to watch today
Shortened trading day. New York Stock Exchange (NYSE) and Nasdaq Stock Market close at 1 p.m. ET. The bond market closes at 2 p.m. ET.
European stocks slip as caution creeps into market [Yahoo Finance UK]
Oil rally ends as concerns grow over vaccine reality [Yahoo Finance UK]
YAHOO FINANCE HIGHLIGHTS