U.S. companies say consumer still strong even as broader outlook dims
today Nov 17, 2019
Walmart became the latest company to point to a strong U.S. consumer, adding to a raft of firms in recent weeks citing healthy demand at a time when spending is seen as an increasingly key support for the economy.
Several companies, including banks and homebuilders, have painted an upbeat picture of consumer health in conference calls this reporting season, even as many firms have offered more dour outlooks, especially given the lingering U.S.-China trade war.
Reports of strong demand are a welcome sign to some in the market amid weakening manufacturing activity and a slump in business investment.
Consumer spending, which accounts for more than two-thirds of the economy, has been mostly resilient. A report on Friday showed U.S. retail sales rebounded in October, even though consumers cut back on big-ticket purchases.
Many strategists remain confident in consumers' ability to support the economy.
"I'm in that camp. We are now in this job market where the consumer has the advantage versus employers," said Lindsey Bell, chief investment strategist at Ally Invest in Charlotte, North Carolina.
Lower interest rates, which mean reduced borrowing costs, are giving people more money to spend, and that is likely to be the case for the first half of next year as well, she said.
On Thursday, Walmart Inc raised its annual outlook and its chief financial officer, Brett Biggs, told Reuters spending going into the crucial holiday season remained healthy.
More reports from retailers are due next week, including from Target Corp, Home Depot Inc, Gap Inc and Macy's Inc, in the final stretch of the earnings season.
Homebuilder Lennar Corp, MasterCard Inc and Tapestry Inc were among other companies that have alluded to healthy consumer spending during recent conference calls.
In JPMorgan Chase & Co's Oct. 15 earnings call, Chief Financial Officer Jennifer Piepszak said uncertainty related to trade may affect some investing but the U.S. consumer is "incredibly strong."
"Sentiment is strong for the consumer, credit is good," she said.
The number of companies mentioning a strong consumer is roughly in line with the number over a similar period in the prior season.
To be sure, though, business investment has been easing, and plenty of companies have given a more cautious view of the outlook. Among them, Cisco Systems Inc late on Wednesday forecast revenue and profit below expectations and said increasing global economic uncertainties were weighing on client spending.
Also, analysts have been cutting earnings forecasts for the fourth quarter and 2020, while third-quarter earnings for the S&P 500 are on track to fall slightly from a year ago. That would be the first quarterly profit decline for the group since 2016, according to IBES data from Refinitiv.
Banking on the consumer is a risk at this point, said Richard Bernstein, chief executive of Richard Bernstein Advisors LLC in New York.
"If we get a profits recession, you're going to see the employment situation start to change," he said during the Reuters Global Investment Outlook 2020 Summit in New York last week.
Investor focus on consumer spending trends is likely to increase as Black Friday and the holiday shopping period - when many retailers get a big part of their annual sales - approach.
While concerns around the outlook still linger, "overall, we find consumer sentiment is in a better spot today than we saw early in the fall," Bank of America Merrill Lynch economists wrote in a note on Friday.
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