Cheer Up, Wall Street! U.S. Primed for Best Holiday Since 2005

(Bloomberg) -- A slowing housing market, tumbling stock prices and a trade war couldn’t derail what appears to have been America’s best holiday-shopping season since before the financial crisis of 2008.

The data coming in so far depicts healthy consumer spending in the U.S., which could perk up investors who have been bracing for a slowdown. After a booming Thanksgiving weekend, the big question entering the final weeks before Christmas was whether U.S. shoppers would keep spending at the same rate, even as the paper wealth of millions deteriorated along with a stock market rout. It looks like the answer is yes, they did, in what may have been the most robust holiday feast since the mid-2000s.

Cheer Up, Wall Street! U.S. Primed for Best Holiday Since 2005

Buoyed by low unemployment and wage gains, Americans remain confident in their finances. That translated into more visits to stores and retail websites than last year, which many had considered the best holiday season in recent memory. Shoppers gobbled up smart speakers and wireless headphones while lavishing their kids with traditional toys like MGA Entertainment’s L.O.L. Surprise.

“Results so far show that the momentum built from last year and only strengthened,” said Poonam Goyal, an analyst for Bloomberg Intelligence. “The consumer has been very keen on spending.”

Several forecasts for retail sales growth for the holiday period from November to December topped 5 percent. If final tallies match those expectations, it would mark the biggest gain since 2005, when a growing economy and rising home equity fueled spending. It would also easily be the best two-year stretch since that period, after a gain of about 5 percent in last year’s holiday sales.

In another bullish sign, shoppers showed up later, meaning many spent more after thinking they were finished with their purchases. Visits to stores jumped 58 percent on Dec. 23 -- the Sunday before Christmas -- according to location-data provider Prodco Analytics. And during the week of Christmas, sales at department stores and discounters rose 9.3 percent from a year earlier, researcher Johnson Redbook said.

Smartphone Shopping

Online sales also surged, in part thanks to an improved shopping experience on smartphones, according to Adobe Analytics. From November to Dec. 19, web purchases rose 18 percent from a year earlier to $110.6 billion. And for the first time, smartphones accounted for half of all web traffic, while generating about one-third of revenue.

But those online gains are both a blessing and a curse. Consumers often reward the retailers, like Amazon.com Inc., with the best web experiences, which means even the greatest of Christmases won’t boost every chain. And for traditional retailers with physical stores, web orders are usually less profitable because of shipping costs, so margins may start to narrow.

That means investors may be in for some unpleasant surprises, in spite of the sales boom, when fourth-quarter results start rolling in. Apparel retailer Express Inc., for example, has already warned that results may be disappointing.

‘Clouds of Uncertainty’

Investors are already jittery about retail stocks. After bidding shares up most of last year, they sold off in November and December at a greater rate than the overall market. The big worry was that holiday 2018 might mark a peak Christmas and that headwinds, like rising interest rates and cost increases from the trade war China and other nations, would slow consumption going forward.

“While we believe that it is turning out to be a strong season, try telling that to the stocks,” John Morris, an analyst for D.A. Davidson said in a note to clients. “Investors are more concerned about the clouds of uncertainty looking ahead into 2019.”

The wealth effect that boosts confidence and spending is also weakening, according to Consumer Edge Research. Net worth rose 2 percent last year for the slowest growth since 2011, according to the researcher’s preliminary modeling. Other negatives include surveys showing falling sentiment among high-income earners and declining expectations for income gains, the firm said.

But while some investors have predicted the U.S. consumer will get knocked off track by rising interest rates, trade tensions and a slumping stock market, for now spending appears to be climbing still.

Tax refunds, meanwhile, could help extend the boom into 2019, according to Well Fargo & Co. The overhaul passed a year ago cut rates for corporations and some individuals, but lots of Americans, especially those on the lower end of the income scale, haven’t seen all those savings flow through to their paychecks, the bank said.

“The consumer is still strong,” Bloomberg Intelligence’s Goyal said. “The question is: Is the consumer going to realize later that ‘wait a minute, I may not have as much money as I do today, tomorrow.’ Or are consumers in such a good position where they have jobs and they don’t care?”

©2019 Bloomberg L.P.