by Retailers Show Signs of Strong Consumer Spending
U.S. retailers show strong earning reports with Target (TGT) leading the way and Lowes (LOW) close behind. Both companies were thought to be hit hard by the trade war but ended up posting higher than expected EPSs through steady consumer spending. Since consumer spending makes up about two-thirds of the U.S GDP, strength in this sector of the market is important to maintain healthy GDP growth and offset the weaker U.S manufacturing sector. With the U.S economy being a little shaky from factors such as the trade war, a bad manufacturing economy, and an inverted yield curve, the U.S is depending on consumers to keep the GDP growth and corporate earnings positive. The problem with this is that it might fall through sooner than people think.
The Bureau of Labor Statistics reports has shown a slow down in real average weekly incomes for the past 6 out of the 8 months. With this data, one can infer that since consumer spending has been giving strong signals of growth, even with lower weekly income from consumers, this growth in consumer spending may be funded by lines of credit. With income lowering and a continuous increase in spending, the problem is the line of credit may not be able to be satisfied or people will have to stop spending money and start saving to pay their bills. which would be devastating for the economy either way. It would be interesting to see whether these retailers have had an increase in their accounts receivables over the past year as a sign of if consumers are utilizing credit more now that there is a decrease in income. From here we’ll have to watch the retailers performance these next coming months as well as the income reports from the BLS to accurately depict the likely hood of a recession in the upcoming months.
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