Hampered by hot weather across most of the country, consumers shunned shopping last week even as retailers teased them with tantalizing sales.
For the all-important fourth quarter, the retail market is poised for growth — that is, if the Federal Reserve keeps interest rates right where they are and the government doesn’t shut itself down. In the meantime, the most recent data shows that consumers took a break from shopping.
The Retail Economist-Goldman Sachs Weekly Chain Store Sales Index fell 3.1 percent for the period ended September 12 from the prior week. On a year-over-year basis, the index showed a 1.3 percent gain.
Michael P. Niemira, chief economist of The Retail Economist LLC, said the hot, “summerlike weather curbed the consumers’ appetite for spending on fall merchandise and kept the interest in shopping more subdued than otherwise even with those Labor Day sales.”
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This year, Labor Day was a week later on the calendar and it negatively impacted August sales. Analysts were expecting the shift to boost results in September, though. “The year-over-year mismatch of Labor Day should have benefited sales comparisons, but alas, Mother Nature provided more enticement to consumers than those holiday sales,” Niemira said.
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In a separate report, retail sales for August showed strength as well as further evidence that apparel sales are bouncing back.
Chris Christopher, director of U.S. consumer economics at IHS Global Insight, noted that the gainers included auto dealerships, electronics, clothing, sporting goods and general merchandise, among others. “Consumers came back to life in the first two months of the third quarter after lying low in June,” he said. “August was a good auto sales month and a decent discretionary spending month. Discretionary spending improved significantly in July and August, indicating that the back-to-school retail sales season has been relatively successful despite a loss in consumer confidence.”
Regarding the so-called “headline effect,” Christopher said recent stock market turmoil has “had a noticeable effect on consumer mood; however, the impact of household financial-asset declines on consumer spending is typically concentrated in high-end luxury items,” he explained. “Most households are more sensitive to changes in real estate wealth than financial equity wealth.”
So far, luxury firms — from Christian Dior to LVMH — have noted that the U.S. has been a top performer. The challenge has been in the Asia-Pacific region. Still, what Christopher describes raises a red flag for companies serving the U.S., high-end consumer. U.S. equities have been extremely volatile, and it could worsen if the Federal Reserve raises interest rates this week. Higher rates often spook investors because it means higher costs for companies to do business.
If the market declines along with equity wealth for luxury consumers, retailers and luxury brands serving the high-end consumer have something to worry about as the industry heads into the fourth quarter. It’s noteworthy that this year’s holiday shopping season is seen as critical for retailers to make up for a lackluster year, according to Shelley Kohan, vice president of retail consulting at RetailNext Inc.
“It will be important for retailers to maximize this holiday season, as holiday 2016 will be challenging, especially with distractions around the presidential election,” Kohan said.
Christopher said the overall consumer spending outlook is “looking relatively positive for the remainder of the year due to real disposable income gains, modest consumer price inflation, lower energy prices, relatively solid employment gains and a housing market that is gaining traction.”
National Retail Federation chief economist Jack Kleinhenz said in a statement that retail sales “showed solid gains in August, despite financial market volatility and a deflationary pricing environment in retail.” However, Kleinhenz stated there are some headwinds in the fourth quarter.
“While today’s data is a positive signal as we head into the holiday season, which accounts for approximately 20 percent of annual industry sales, there remain a few potential speed bumps such as lackluster wage growth, uncertainty around a possible government shutdown, Federal Reserve policies as well as global market events,” Kleinhenz said, adding that he expects consumers to “remain resilient, but will continue to make measured decisions in their purchases in the coming months.”