NEW YORK (
) -- Shaky consumer spending could put the brakes on a global recovery that shows signs of recovering.
Most recently, economies in Japan, Germany and France were able to expand due to a rebound in global manufacturing.
Additionally, GDP numbers were better than expected in the United States and exports increased by 1.9% in June. Although all these indicators are pointing to an improving global economy, it is the consumer in the U.S. that will fuel a sustained economic recovery, and data suggests that consumers are still wary.
Most large U.S. retailers are openly stating that consumers are just outright reluctant to spend. Discount retailer,
, which is up 75% from a March close of $25.37, recently reported a decline in sales of 6.2% from a year ago.
The situation is even worse in the luxury retail sector, where
, reported a 15.55 same-store sales decline in the past quarter. The stock, which closed at $5.72 Tuesday, is up 269% since a March low of $1.55.
It appears that the average consumer is still has a tight grip on his wallet as a result of high unemployment rates, stagnant wages and tight lending. Tight credit has had a significant impact on retail sales as Target reported one-third of its overall sales come from credit card transactions and believes that tightening credit standards may have contributed to as much as half of one percentage point to its same-store revenue declines.
This penny-pinching trend is not only affecting revenues but has forced many retailers to trim inventories that will prevent them from offering massive markdowns and eventually bolster profits. Indeed,
recently stated that they cut purchases by nearly 25%. This strategy of leaner inventories and fewer choices could potentially back-fire if customers are disappointed with a lack of choices or are unable to find discounted merchandise.
Although the vast majority of retailers seem to be hurting on the revenue side, those that are providing bare essentials at highly discounted prices seem to be doing well. Recently,
, which operates the highly discounted retail chains TJ Maxx and Marshalls, reported an increase of sales of 4%. The stock is 77% from its January low of $19.42 after closing at $34.33 on Tuesday.
Consumer spending is so vital to the American economy because it constitutes nearly 70% of the nation's GDP. Although most economists believe that modest economic growth will be seen in the second half of the year, the consumer could potentially be the counterweight of an economic recovery and an increase in consumer spending will be absolutely necessary to sustain growth.
From an investor's perspective, one must keep in mind that investing in these mentioned equities comes with risks and to help minimize these risks implementing an exit strategy is of importance.
According to the latest data from www.SmartStops.net, an uptrend in these equities could be in trouble at the following price levels: TGT at $41.79 ; SKS at $5.00; TJX at $33.11. Keep in mind that these price levels change on a daily basis and updated can be found at www.SmartStops.net
-- Written by Kevin Grewal in Laguna Niguel, Calif.
Kevin Grewal is an editorial director and analyst at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, he was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.