Since consumers drive the U.S. economy, and the U.S. is one of the few engines of growth in the world, shoppers really need to come through to save the global economy. Will they?
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Yes, but barely. That take is based on the retail sales numbers rolling out right now, as well as the most recent reads on consumer confidence and employment.
But these numbers hide what's really going on. Consumers are spending, they're just buying big-ticket items like cars and refrigerators instead of going to the mall. That's a bullish sign.
Car sales, for example, averaged 16.8 million units during the third quarter, just about the highest level in the past five years. "A 10% down payment on a $30,000 car is $3,000 worth of consumer discretionary spending that isn't going to Red Robin (RRGB) burgers or Michael Kors (KORS) clothing," says Stephen Roseman, who tracks consumer trends at Calamos Investments.
"Consumers are spending -- they're just not spending at retail stores," Roseman said.
We'll see more evidence of this preference for big-ticket items in third quarter results posted by Lowe's (LOW) and Home Depot (HD) next week. They're expected to post 4% to 5% same-store sales growth for the quarter, according to Thomson Reuters, driven by increased spending on durable goods like fridges and washing machines.
This shift towards buying big-ticket items is a sign of confidence among shoppers. "Consumers are feeling more comfortable taking on more debt, and buying more durable goods," says Sarah Henry, a retail sector analyst at Manulife Asset Management. "They're showing healthier longer-term spending patterns, rather than devoting the next $40 to clothing."
This explains why we learned today that October retail sales reversed a September decline to rise 0.3% in October, even as Macy's, Kohl's and the Gap all just missed estimates for the quarter and posted declines in same-store sales.
Consumer strength was also confirmed today by the Reuters/University of Michigan consumer sentiment index, which came it at 86.9 for October, the highest since July 2007, and up from 84.6 in September.