Under the shadow of high inflation and recession, the consumption data of the US holiday shopping season unexpectedly better than expected.
Adobe Analytics, a data and analysis unit under Adobe 3, shows that US shoppers' online spending on Black Friday this year reached a record $9.12 billion, up from $8.92 billion in 2021. increased by 2.3% year-on-year, setting a historical record, better than previous market expectations.
On Thanksgiving Day (November 24), the day before Black Friday, consumers spent $5.29 billion online, a year-on-year increase of 2.9%, also hitting a record high. Normally, consumers spend about to on daily moving average is about 2 billion to 3 billion US dollars.
For the ongoing Cyber Monday (November 28), Adobe expects consumer spending to reach $11.2 billion, a year-on-year increase of 5.1%, making it the largest online shopping day of the quarter.
Overall, the holiday shopping season has achieved good results, but behind the superficial prosperity, the real situation is not so optimistic and is already "crises everywhere".
Image source: Xinhua News Agency
Behind the prosperity of "danger" signals
Behind the expected U.S. holiday consumption expenditure, discounts are a key factor. Adobe said consumers have set a record online spending and they have received significant discounts on various items such as smartphones and toys.
Specifically, electronic products are the main contributor to online sales. On Black Friday, the online sales of electronic products in the United States soared 221% from the October average, toys were also very popular, up 285%, and sports equipment increased by 218%.
In addition to the discount factor, the relatively strong labor market currently provides consumers with ammunition. Standard Chartered Chief Investment Strategy Teacher Wang Xinjie analyzed to 21st Century Business Herald reporter that from a macro perspective, the enthusiasm for US consumption comes from hot labor data in the short term, although the unemployment rate slightly exceeded expectations in the non-agricultural data last month. However, the preliminary decline in labor market data does not prove that the labor market has entered a "cooling-off period". On the contrary, the expectation of job vacancies to be announced on Wednesday is still as high as 10.325 million, which is a historical high and puts upward pressure on salary levels. In the short term, the current consumption data will still benefit from an increase in wage levels.
On the other hand, although the shopping season is booming on the surface, the actual situation is not optimistic. The growth rate of 2.3% is actually far less than that of the US inflation rate, which means that the actual sales in the shopping season are likely to decline.
According to data from the U.S. Department of Labor, the consumer price index of in October (CPI) rose 7.7% year-on-year compared with , although it slowed significantly from 9.1% in June, but it is still near its high in nearly 40 years. At the same time, wage growth in the United States has not kept up with inflation, and hourly wages excluding inflation have decreased by 2.8% year-on-year, indicating that Americans' purchasing power is declining.
S&P Global Market Intelligence data also echoes this, with retailers expected to grow 4.5% year-on-year during the US holiday shopping season this year, but actual sales after excluding inflation may fall by 1.2%.
Researcher Lu Haomin, a researcher at the China Banking Institute, analyzed to a reporter from 21st Century Business Herald that the decline in actual consumption expenditure in the United States indicates that rising prices and interest rate levels are bringing greater pressure to families, and the risk of recession of the US economy is rising. Currently, the decline in real consumption expenditure in the United States is affected by dual factors. On the one hand, US inflation has continued to be high since 2022, and the prices of goods and services have risen, eroding consumers' purchasing power. On the other hand, as the Federal Reserve hikes hikes hikes hikes hikes , expectations of a recession in the United States intensifies, and companies begin to make large-scale layoffs. Against this backdrop, Americans have to cut consumption to deal with potential risks. In the US GDP, private consumption expenditure contributes as much as 65%-70%. The decline in real consumption spending reflects a weak demand trend in the U.S. economy, which means that an economic recession may come.
strong consumption data may be "return to the light"
Under the impact of stagflation that is almost foregone conclusion, the current strong consumption data in the United States is more like the "return to the light" before the recession.
A resident of California told reporters that although the salary has also increased a little, the price increase of various commodities has become even stronger, and their income is still OK, and they are not greatly affected. But it is more difficult for low-income people. The cost of getting on and eating has increased, so I can only save some money in other aspects.
Data released by Moody's analysis shows that American families need to pay an extra $433 within one month to buy the same goods and services in the same period last year.
In addition, a series of data have actually shown consumption fatigue, and American consumer confidence has become declining under the shadow of high inflation and economic recession. On November 11, the University of Michigan released the initial value of the November consumer confidence index , which was 54.7, lower than the expected value of 59.5 and the previous value of 59.9.
In Wang Xinjie's view, a better-than-expected holiday consumption data will not alleviate the impact of macro and microeconomics on consumption. It will continue to be affected by the economic recession and the cooling of the labor market in the future. The consumer confidence index reflects the future economic situation.
At the corporate level, Macy's CEO Jeff Kinnett found that since the end of October, customers have often only shopped but not bought. Walmart Chief Financial Officer John Rainey pointed out that due to the reduction in savings, many low-income Americans can't afford the necessities of life, let alone buy non-essential goods.
recruitment data also reflects the downward trend of consumption. The National Retail Federation predicts retailers will employ 450,000 to 600,000 seasonal workers this winter, down from 669,800 in 2021. This year's holiday, U.S. retail sales will increase by 6%-8% year-on-year to US$943 billion-960 billion. This is more than the average growth rate over the past 10 years, but it is still far lower than the 13.5% increase last year.
On the other hand, although slowing consumption is a foregone conclusion, the future may not be extremely bad. Fitch rating US economy director Olu Sonola told reporters that compared with historical standards, US household debt and leverage ratios are still relatively low, and the household debt default rate also remains moderate, and the relatively strong US consumer finance will help cushion the impact of the recession.
This may mean that the United States will only usher in a moderate economic recession. Sonola expects the U.S. economy to enter a real recession range in the second quarter of 2023, which is very similar to the recession from 1990 to 1991 and is relatively moderate by historical standards.
Some people are happy and some are worried
Although demand is down and consumption is becoming weaker, the Fed is actually happy to see it.
The Fed is trying to curb demand through a sharp rate hike and is paying close attention to consumer spending. Soaring inflation forces consumers to spend money on the edge, which has caused stores to pile up a large amount of surplus products, forcing retailers to cut prices for to destock at the expense of profits, which is exactly what the Fed wants.
Federal Vice Chairman Brainard said that the increase in inventory may intensify "competitive pressure" and reduce retailer profit margins, which can help alleviate inflationary pressure on some consumer goods. St. Louis Federal Reserve Bank President Brad stressed that this Christmas season may not be as good as in previous years, but the economic slowdown is good news for Christmas .
Similar to this, San Francisco Federal Reserve Bank Governor Daly also said that consumers are taking a step back and changing the way they allocate their spending. In the face of high inflation, consumers must make trade-offs and put back what they originally wanted to buy, while they are also preparing for the economic slowdown. This is a very good start. What impact will the downward trend of consumption-related data on Fed policy? Lu Haomin believes that the weakening of the momentum of domestic demand in the US economy and the rising pressure of growth and recession will prompt the Federal Reserve to slow down the pace of interest rate hikes. Since 2022, due to high inflation and rapid interest rate hikes in the Federal Reserve, the momentum of US economic growth has gradually declined. It fell into a "technical recession" in the first half of the year. Although the US GDP turned positive again in the third quarter, core sub-items such as consumption and investment fell, reflecting the weakening of the internal growth momentum. As the economic downward pressure increases and inflation gradually falls, the Fed's interest rate hike in December may slow down to 50 basis points, and reach a terminal interest rate level of about 5% in the first quarter of 2023.
Although the Fed is happy to see demand being suppressed, retailers will certainly not be happy. “Consumers shop around when shopping, which could eventually put pressure on retailers’ profit margins,” warned Mark Stoeckle, CEO of Adams Funds. “If you believe this, don’t hold this type of stock now.”
Amid the backdrop of soaring inflation and rising concerns about recession, the S&P 500 retail index has fallen about 30% so far in 2022. Given that consumers are expected to continue to tighten their belts, U.S. retail stocks may find it difficult to get rid of a year-long downturn.
microscopic, Wang Xinjie analyzed that judging from the third-quarter US performance report, although the non-essential consumption sector still recorded a profit growth of 13.1% due to wage growth, it was still lower than expected, and was the third from the bottom among all sectors. The positive impact of wages on consumption has been reflected in expectations. Future recessions and cooling of the labor market may put downward pressure on the consumer sector.
Under the shadow of high inflation and economic recession, Wang Xinjie believes that investing in retail stocks requires being vigilant. The investment prospects of retail stocks are closely related to economic prospects, inflation, wage levels and monetary policy . The probability of an economic recession in the future is still very high. Although the inflation level peaks, it is still sticky. You cannot change your view on the industry prospects just because the holiday retail data is better than expected. Short-term data will be greatly affected by the labor market and there will be a possibility of reverse the situation in the future.
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