Advisory Intelligence: Consumers set for some Christmas cheer, says Nasdaq

Nov 17, 2017
The outlook is bright for the US consumer

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Like the US economy, the picture for the US consumer is bright. Giving a detailed perspective on this, Josh Elman, consumer and retail analyst with Nasdaq Advisory Services, offers an impressive list on the upbeat nature of the consumer outlook in the US market.  

‘The markets are at record highs and the unemployment rate is at 4.1 percent, which is very low,’ Elman says. ‘We are starting to see additional evidence of wage inflation and credit growth remains healthy. The Federal Reserve, while on a path to raise interest rates, is still very accommodative. And confidence numbers from the government and the University of Michigan have been very strong of late.’

Furthermore, according to a bevy of surveys, there is real evidence of a pick-up in manufacturing: ‘The current state of the US consumer is healthy, which is a strong signal for the upcoming holiday season.’

Have the recent hurricanes not had an impact on this rosy picture? ‘The unfortunate hurricanes did put a dampener on things from a retail perspective,’ Elman admits. ‘But it seems we have moved past them if you look at the September sales data, which shows some healthy growth. That said, there could be some residual noise from the hurricanes.’

Given this overall positive picture, what seem to be the key trends and perspectives for the upcoming festive season? ‘Retailers in general should be excited for the holiday season as they are well prepared and positioned to meet customer needs from an in-store and e-commerce perspective,’ says Elman.

At this time of the year, Nasdaq Advisory Services hears from many consultancy groups analyzing trends and, interestingly, most are predicting a solid holiday season, with some forecasting growth between 3.5 percent and 4 percent. ‘The general sentiment for the holiday season seems to be a strong one,’ notes Elman.

Additionally, the calendar this year is highly favorable to the retail sector compared with 2016 due to the full weekend just before Christmas, helping retailers significantly.

Digging down on 2017 consumer stock performance, Elman presents a mixed and multi-layered picture. ‘Some subsectors of the consumer space have been performing very well, while others have been languishing: the space generally remains pretty volatile as investors try to figure out how the retail shake-out will end in terms of positioning and consumer preferences,’ he says.

‘If you look at the broad retail category, overall we have seen green shoots, especially around the second quarter of earnings. Restaurants’ performance has been mixed but quick-service restaurants have performed well. Leisure has been a solid performer, beverages have been pretty good and household products have been holding up. One weakness in the consumer channel has been the food space, which has been under some pressure.’

There are also political factors to keep in mind coming from Washington. ‘Earlier in the year we had a lot of talk about the implication of a border adjustment tax, which was an overhang on the space in general, with retailers lobbying against it,’ Elman explains. ‘The tax ultimately fell through and removed some of the perceived uncertainty from a consumer spending point of view.’

Consolidation and M&A activity have also shaped the consumer environment. ‘We have seen a real uptick in consolidation this year in the consumer space,’ notes Elman. ‘Obviously there have been some transformative deals that dovetail with consumers’ changing preferences. We have seen traditional brick-and-mortar retailers beef up their e-commerce operations through acquisitions. And we have seen dominant players in e-commerce try to move into brick and mortar.

‘We have seen consolidation not just from M&A, but also from bankruptcies and store closures, as retailers and restaurants try to right-size the landscape. And we have e-commerce players that have had more of an impact on the space overall, as the channel continues to gain strength.’

So what will 2018 look like from a consumer perspective? ‘We believe the first few months will focus on whether the holiday season delivered: was it strong? Did it have some weakness? Time will tell with that,’ says Elman.

‘You will also have the battle between rising rates versus increased inflation, which will ultimately have an impact on the overall consumer, so it will be interesting to see how the Fed navigates that – and the trickle-down impact on the consumer.’

The stock market to date has had an unbelievable bull run. ‘One of the things we are looking at is whether that can continue,’ Elman says. ‘The theme of consolidation will continue. Then there is the possibility of a government shutdown in December, which could have an impact on holiday spending. And don’t forget about the debt ceiling debate early next year – that could have an impact, too.’

This content was produced by Nasdaq Corporate Solutions and first appeared on Nasdaq’s website.

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