The beleaguered US consumer is in focus this week with top retailers including Macy’s, JC Penney and Kohl’s all reporting Q1 earnings before retail sales data prints on Friday.

Economists have been confounded in the last year-and-a-half by the weakness of US consumer spending despite the supposed “tax-cut” of lower petrol prices.

There are multiple explanations for the weakness, all of which are likely to have contributed to Americans not spending as much at the big stores as they once did. They include:

  1. Competition from Amazon and online retailing
  2. A cyclical shift in spending habits away from “stuff” to “experience”
  3. Higher rent and health insurance (Obamacare) costs
  4. Rising wealth and income inequality
  5. High-wage manufacturing jobs replaced with low wage service jobs

Whatever the reason for the downturn in spending, US retailers have been underperforming the broader US stock market in the last 12 months.

The two companies that have outperformed, JC Penney and Target are coming from a much lower base after scandals and mismanagement led to heavy sell-offs.

The companies represent good value compared to the overall market and should US economic growth and consumer spending pick up, the companies have a lot of catching up to do. The risk is that US economic growth looks lacklustre despite massive monetary stimulus and as time marches on, the likelihood of a recession increases.

US retail sales are expected to fall -0.3% m/m in April, matching a -0.3% fall in March

Source: CMC Markets, 5/5/16


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