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The December stock market crash and government shutdown are freaking U.S. consumers out

Brian Sozzi

U.S. consumers may not be ignoring the brutal headlines describing the December stock market rout and growing impact of the government shutdown.

After a blistering start to the holiday shopping season on Black Friday and Cyber Monday, retailers such as Macy’s and Kohl’s hinted strongly Thursday that sales weakened in mid-December and trailed off after Christmas. Sales appear tepid into January, too, despite the stock market’s rebound from the now infamous “Christmas Eve Massacre.”

“The holiday season began strong — particularly during Black Friday and the following Cyber Week, but weakened in the mid-December period and did not return to expected patterns until the week of Christmas,” said Macy’s Chairman and CEO Jeff Gennette. Macy’s said same-store sales rose a disappointing 1.1% in the November and December period.

The department store retailer cut its full year same-store sales outlook by 0.3%. It also slashed its full-year profit outlook to $3.95 to $4.00 a share from $4.10 to $4.30 as it will spend January using aggressive promotions to clear slow selling holiday merchandise.

“We are revising the guidance we provided in November and will continue to take the necessary steps in January to ensure a clean inventory position as we enter fiscal 2019,” Gennette added.

Macy’s shares plunged 18% Thursday morning on the news.

The scene was mixed at some of Macy’s rivals exiting the holiday season:

  • Target revealed Thursday that it had a bang up holiday season. Same-store sales rose a hearty 5.7% and online sales gained 29%. But, the company only reiterated its full year profit outlook of $5.30 to $5.50 a share. That likely will spark worry on Wall Street as to how consumers are spending at Target stores this month. Target shares declined 4%.

  • Kohl’s CEO Michelle Gass tried her best to hype up the company’s holiday performance (the word “strong” was used three times when describing the results), but the market wasn’t buying it. Same-store sales rose 1.2%, below Wall Street estimates of about 2% growth. The result marked a sharp slowdown from 6.9% growth a year ago. The company did revise its full-year profit outlook to $5.50 to $5.55 a share from $5.35 to $5.55 previously. Kohl’s shares tanked 7%.

  • JCPenney said Tuesday that same-store sales through Jan. 5 declined 3.5%.

Consumer confidence wanes

U.S. stocks had their worst December since the Great Depression. The Dow Jones Industrial Average fell 9.7%, the Nasdaq Composite dropped 10.4%, and the S&P 500 declined 10%. Meanwhile, the partial government shutdown has entered its 20th day. Hundreds of thousands of federal workers will start to miss paychecks on Friday if President Donald Trump and Democratic leaders fail to ink a deal.

Consequently, cracks have broadened out in consumer confidence measures. Consumer confidence in December slumped to the lowest level since July, according to The Conference Board. A measure of labor market expectations declined by the most in 41 years.

The December confidence measure from the University of Michigan was also nothing to write home about. Consumer confidence narrowly beat analyst estimates at 98.3 for the month. But, labor market expectations weakened.

"Consumers reported more negative than positive news about job prospects for the first time in two years, with the shift widespread across socioeconomic subgroups," said University of Michigan economist Richard Curtin.

Not on everyone viewed the latest from retail as a bearish read on the consumer.

“I don’t think these numbers are necessarily an indictment of the consumer, but it’s brand specific,” says SunTrust chief markets strategist Keith Lerner. “Additionally, some companies did not do as well competing online; there was also a lot of price competition, which hit margins. Moreover, some department stores are getting hit as more people shop online.”

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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