January’s consumer spending numbers are here, and investors are feeling less than enthusiastic about the data.
In the U.S. Commerce Department’s report, released this morning, retail sales (excluding automobiles, gasoline, building materials, and food services) for last month saw zero change. December’s statistics were revised, too, dropping to a 0.2% gain in core retail sales from 0.5%.
And to gross domestic product (GDP)-wise economists, that’s potentially a big deal. Core retail sales correspond closely with the consumer spending component of GDP.
This morning’s report suggests that strong consumer spending – a pillar of the 2018/2019 economy – could finally be fizzling out.
Earlier this week, Fed Chairman Jerome Powell told lawmakers that the “economy is in a very good place, performing well.” Even though core retail sales didn’t change, overall retail sales (including automobiles, gasoline, building materials, and food services) rose 0.3% in January.
Auto sales in particular enjoyed a positive swing, recovering from a 1.7% decrease in December to a 0.2% leap last month. Building material store sales stole the show, however, rising 2.1% – the most since last August – amid the homebuilder boom.
Clothing store sales endured the biggest drop, falling 3.1% last month in what was the largest decrease since March 2009.
“Consumer spending is still struggling for momentum,” said Andrew Hunter, senior U.S. economist at Capital Economics.
“That may also have been affected by the unseasonable weather, but there were also declines in electronics and health & personal care, while online sales continued their relatively subdued run.”
Overall, it was a mixed-bag of a report, but apparently not indicative of how consumers are feeling. The University of Michigan’s February consumer sentiment index – also released this morning – clocked-in at 100.9, beating the 99.5 consensus estimate. That’s the highest it’s been since March 2018, a year in which the U.S. economy grew 2.9%.
Despite the “sentiment beat,” stocks are trading flat on the day. The major indexes, much like core retail sales, remain mostly unchanged.
Even at the end of another positive earnings season.
More than 77% of the S&P 500’s companies have reported Q4 numbers. Of those companies, 72% beat consensus estimates.
“We’re looking now at a very modest positive quarter for the fourth quarter,” remarked Jon Adams, BMO Global Asset Management’s investment strategist.
“If we do see earnings growth pick up here, which we think it will throughout 2020, that will bode well for U.S. equities.”
Provided, of course, that the coronavirus doesn’t pick up any more steam. Today, China confirmed over 4,100 more infections, marking the largest daily gain (outside of yesterday’s 15,000 burst) since the outbreak began. U.S. corporations that do business in the region are warning investors that Q1 2020 revenues will be affected. Death counts are decreasing in China, too, after officials claimed they had been double-counting deaths on accident.
“The recovery looks rational, although it may appear early,” said Timothy Moe, chief Asia Pacific regional equity strategist, in response to the Hubei province’s data revisions.
“To the extent that investors are looking at equity market performance after previous virus outbreak episodes as a template for current potential performance, the current macro environment does not appear as supportive for equities.”
How much the coronavirus impacts the market long-term remains to be seen.
For now, though, strong Q4 earnings could keep stocks afloat. If the bull run is to continue, it will do so on the backs of America’s top corporations – the most powerful weapon investors have against the Chinese “super flu.”
