This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Retailers to Feel Pinch as Shoppers Curtail Spending

Stocks in this article: PEZ VCR XRT

NEW YORK ( TheStreet) -- Although many retailers reported first-quarter earnings results which beat Wall Street's expectations, an ambiguous recovery in consumer spending and confidence will likely put a strain on near-term growth and profitability.

On one hand, retail giant Target (TGT - Get Report) said same-store sales in May jumped 1.3%, a hair ahead of expectations as it witnessed a rise in credit card sales, suggesting consumers are more willing to extend themselves. On the other hand, clothing retailers, which are a good indicator of consumer discretionary spending, such as Abercrombie & Fitch (ANF - Get Report) and Hot Topic (HOTT), reported sales that fell short of expectations. Additionally, warehouse giant Costco Wholesale (COST - Get Report) saw an uptick in sales of food, an essential item, and a decrease in the volume of televisions sold in May.

These trends indicate that once again, consumers are starting to penny-pinch and only spend on necessities. A retailer like Target, which many consumers visit to purchase food, toiletries and other household essentials, is less likely to feel the revenue stream impact from a decline in consumer discretionary spending than a retailer like Abercrombie & Fitch.

This erratic consumer sentiment is primarily being driven by a job market which fails to improve and remains weak. According to data from the U.S. Labor Department, the unemployment rate in 78% of the metropolitan areas covered by the Labor Department was higher in April than a year ago. Additionally, the April report indicated that year-over-year decreases in nonfarm payroll employment was seen in 300 metropolitan areas. To make things even more challenging, a study conducted by the payroll giant ADP and consulting firm Macroeconomic Advisers suggests that the four-week moving average of initial claims for jobless benefits increased in the last week of May.

The nation's overall unemployment rate continues to hover around 10%, and is likely much higher than this because the data that is used to derive the percentage comes from household surveys and not actual payroll data. With elevated unemployment rates, it is difficult to sustain an increase in discretionary spending.

(The Labor Department on Friday reported nonfarm payrolls jumped 431,000 in May, while e the nation's unemployment rate fell to 9.7%. Economists had predicted that employers would add about 500,000 jobs to nonfarm payrolls in May).

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,650.96 -21.64 -0.12%
S&P 500 2,050.54 -1.28 -0.06%
NASDAQ 4,755.8670 -2.0120 -0.04%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs