As large retailers are set to announce their “earnings” Thursday, the news out of the New York Fed foreshadows a bleak 2017 for discretionary spending.
The NY Federal Reserve Bank, led by Bill Dudley expects a drop off in consumer spending to levels never recorded in its monthly survey.
Median household spending growth expectations dropped sharply from 3.3% in March to 2.6%, the lowest level observed since the start of our survey in June 2013.
The decline was fairly widespread, but largest among lower education (high school or less) and lower income (below $50,000 household income) respondents.
The consumer is tapped out, as I have been saying this year. There is no wage growth to speak of for the lower classes, which reaches into those who could be classified as middle class.
This is the primary reason behind the retail bankruptcies and store closures. It’s much easier to say Amazon is behind it, however even it did not hit its numbers for the quarter.
Consumer spending makes up roughly 70% of GDP. This is why Q1 growth came in at 0.7%. Look at projections for Q2 GDP. The Atlanta Fed’s GDPNow had Q2 at 4.3% on May 1st, it now has it at 3.6% and falling fast. The Atlanta Fed projected Q1 at 0.2% and we may get there with the first revision scheduled to come out later this month.
All signs are pointing to another recession or at least growing stagflation, where growth stalls and inflation rises, which is one of the worst positions for Janet Yellen & Co, since they have no tools to combat it.
So don’t look to Macy’s, Kohl’s, Nordstrum’s Thursday after the bell or JCPenney on Friday to put out rosy numbers or an optimistic outlook going forward on their calls today.
Here are the early earnings headlines:
MACY’S DROPS 4.9% AFTER 1Q COMP. SALES MISS ESTIMATES
MACY’S SHARES DOWN 6.6% PRE-MARKET ON EARNINGS MISS
KOHL’S SAME-STORE SALES DROP 2.7%
KOHL’S REVENUE COMES IN LIGHT