What Consumer Confidence Numbers Mean for Black Friday

The Conference Board released the Consumer Confidence numbers for November. The number came in at 125.5. The number did not meet analysts’ expectations for a 128.2 reading. The 125.5 number was the fourth straight month that the number declined and was the lower reading since the spring.

The Conference Board also revised the October number lower to 126.1. Consumer confidence readings have come significantly down from their 18-year peak set just over a year ago.

The data is particularly timely because it comes on the advent of Black Friday, the de facto beginning of the holiday shopping season in the United States. In October, the National Retail Federation projected U.S. holiday sales are expected to grow in a range between 3.8 and 4.2%. That would equate to between $727.9 billion and $730.7 billion.

“The U.S. economy is continuing to grow and consumer spending is still the primary engine behind that growth,” wrote NRF President and CEO Matthew Shay.

That sentiment was shared by Katherine Judge, an economist for CIBC World Markets. “While the consumer confidence reading wasn’t what we were looking for,” Judge said of the report, “the index remains elevated and we therefore still have confidence in consumers’ ability to prop up the economy.”

The report is a ray of sunshine in a cloudy earnings season

Overall, the retail sector has been a mixed bag. Beyond the expected Amazon NASDAQ: AMZN effect, retailers such as Best Buy NYSE: BBY and Target NYSE: TGT have been the exception. Other retailers such as Macy’sNYSE: M, Urban Outfitters NASDAQ: URBN, and Kohl’s NYSE: KSS have seen their share price plummet on poor earnings report. Even companies that still look like good investments such as Home Depot NYSE: HD and WalmartNYSE: WMT have seen their stock price hit by earnings reports that did not meet analysts’ expectations.

The conventional wisdom for retail companies is that there is a new model. Retailers have to be able to give customers what they want, when they want it and be able to ship it to where they want it. Some retailers have been late to make this investment and it is being reflected in the stock price of those companies.

This is leading some retailers to express the sentiment that Black Friday may do them more harm than good. If a struggling company performs poorly on Black Friday, it could cause its stock price to decline further.

What is bad about the report?

Americans are expressing a higher degree of worry about the labor market. While jobs are less plentiful, the unemployment rate is near a 50-year low and wages are slowly, but steadily, increasing. Nevertheless, recession talk can be a self-fulfilling prophecy. Many economists are downplaying the chance that the economy will dip into recession in 2020. However, the U.S. economy has other headwinds such as the ongoing U.S.-China trade war.

As much as the current administration says we’re winning, many retailers would disagree. A common theme for retailers is “enough is enough”. Many of these retailers are now saying that, despite their optimism for the holiday season, 2020 could be another story.

“… there has clearly been a slowdown brought on by considerable uncertainty around issues including trade, interest rates, global risk factors, and political rhetoric,” said the NRF’s Shay. “Consumers are in good financial shape and retailers expect a strong holiday season. However, confidence could be eroded by the continued deterioration of these and other variables.”

Next year will also be an election year. While that generally has no impact on the overall stock market, it can impact consumer spending habits. Election years put a disproportionate spotlight on “kitchen table” issues that affect consumers such as higher taxes, affordable health care, or the security of their job. Any or all of these can have an effect on consumer spending.

The proof will be in the spending

According to the COUNTRY Financial Security Index, 72% of Americans said they don’t save enough during the year to pay off their holiday spending. However, this is not “new” news. In fact, you could look at data for the last several years and probably find a similar number.

The fact is that the holiday season is known as the season of debt for a reason. And the idea of dipping into their savings or using credit cards to finance their holiday shopping is unlikely to prevent consumers from spending this holiday season.

Unless it does. That’s the simple truth about consumer confidence. It’s there until it’s not.