Performances have been mixed across the retail sector in 2018. Here’s a look at what’s been going on in the sector ahead of upcoming earnings reports.
U.S. retail sales started the year on a softer note, but the latest reading from the Commerce Department in mid-June showed a stronger turnaround in consumer spending. Retail sales rose 0.8% in May and were up 0.9% excluding auto sales. On a year-over-year basis, retail sales were up 5.9% in May. April’s figures were also revised upwards from 0.2% to 0.4% growth.
Consumers still appear to be confident about their current economic situation and have been optimistic overall. The University of Michigan’s Consumer Sentiment Index was at 98.2 in June, up from 98 in May; the Conference Board’s Consumer Confidence Index slipped from 128.8 in May to 126.4 in June, although it still remains close to 17-year highs.
Two of the reasons consumers cited for their optimism include a strong labor market and a positive assessment of wages. The unemployment rate was at 4% in June, up slightly from May’s 3.8% rate. That uptick wasn’t entirely perceived as a negative, as labor force participation increased 0.2% at the same time. Average hourly earnings were up 2.7% year over year in June.
Tax reform could be helping put a little more money into consumer’s pockets as well. And despite the continued rise in 2018, interest rates still remain relatively low, potentially spurring consumer borrowing and spending. If interest rates start rising rapidly, that could have the opposite effect.
One area that both consumers and retailers have expressed concerns about is the potential impact of tariffs. Even though consumer goods were mostly left off the list of initial 25% tariffs the U.S. placed on Chinese imports on July 6, a lot of those tariffs were targeted at high-tech goods, particularly components used in manufacturing electronics and appliances. The latest round of 10% tariffs on $200 billion worth of Chinese imports that the U.S. announced on July 10 does include a greater number of consumer goods.
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