Consumer sentiment rises, but retail earnings show value shift
While the University of Michigan's Consumer Sentiment index rose by 19% year-over-year in February, showing continued resilience amid economic uncertainty and inflation, earnings reports out Tuesday from retail giants Macy's (M) and Lowe's (LOW) indicate consumers are becoming more value-conscious with their spending.
Yahoo Finance's Brad Smith and Seana Smith break down the details.
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Editor's note: This article was written by Angel Smith
Video Transcript
BRAD SMITH: Our top story this morning, we're getting a read on the consumer ahead of a key inflation report later this week. Overall, US consumers are feeling more assured about the economy of late, the Consumer Sentiment Index rising in February to just under 80. That's up 19% from the prior year. But Americans are altering their spending as evidenced through earnings out this morning before the bell from retail giants like Macy's and Lowe's here.
And what really showed up to me, Seana, in those two reports here is really the value moderation or value readjustment here that we're seeing from consumers where these little luxuries-- they're continuing to outperform in the form of Macy's. However, the DIY projects and some seasonality showing up in the mix here for Lowe's and impacting them.
SEANA SMITH: Exactly. We certainly are starting to see more and more pressure on the consumer. We've been talking about for quite some time the fact that inflation is really making and forcing consumers to adjust their spending patterns right now.
And we're seeing that reflected in many of these retailer reports, Macy's being one of them, this morning. Obviously launching a whole new strategy under their newly minted CEO there, Tony Spring. They're talking about changes that they want to make in the future, adjusting to this new reality that they are facing right now.
And then, when you take a look at Lowe's, not too far off from what we heard from Home Depot in terms of some of that weakness. But like you said there, Brad, a lot of Lowe's-- or a lot of the reason that we're seeing even more challenges potentially here for Lowe's is because of their heavy reliance on the do-it-yourself product. The fact that it makes up accounts for a significant part of their revenue clearly weighing on the results this past quarter, and also going to be a real challenge here for the sector at large for the coming quarters.
BRAD SMITH: Yeah, one of the huge things, especially as we're kind of teeing up this conversation ahead of PCE, that Personal Consumption Expenditures number, that is the Fed's key inflationary gauge that we're going to be watching for later this week here is two factors that are really rounding out this consumer mindset right now.
And it showed up within this most recent consumer sentiment print, which we're going to get another update on that on Friday as well from the University of Michigan, but it's going to come back to two things, the continued slowdown in inflation, but also the strength in the labor market too, where consumers feel comfortable at least in the employment situation having the opportunities out there in the market to either enter into a new role or get paid better in a current role. That's going to continue to weigh into the mindset as well.
