Although the economy recovers at a modest pace, consumers are not willing to spend their money. This latest report shows that July retail sales were flat versus a +0.2% consensus. This figure is in contrast to the improving unemployment rate, which indicates that consumers should have more money to spend as more people have a job (excluding people who give up their search for a job of course).
Retailers experience that consumers are cautious, for example Macy's (NYSE:M) and Wal-Mart (NYSE:WMT), two large-cap retail companies, reported worse than expected earnings in the second quarter of this year. Not surprisingly, the SPDR S&P Retail ETF (NYSEARCA:XRT) lost 3.21% year to date compared to a gain of 7% by the S&P 500 (NYSEARCA:SPY).
In this article, I will discuss three economic indicators that should explain the restraint with respect to consumer spending. These indicatores include consumer confidence, personal savings and debt repayments.
From early 2014, when earnings reports were beginning to be released, the overwhelming consensus was that weather was the major culprit in poor retail sales, although a number of companies I've written about outside of retail asserted the same thing.
Now that the smoke has cleared and the latest numbers being released, it has been found out that there was something systemic about the poor sales results in the last quarter of 2013, as retail continues to struggle, with auto being the key sector that has shown any sustainable strength over the last nine months or so, although that shows signs of slowing down as well.
That was evidenced by retail giants like Wal-Mart (NYSE:WMT) and Amazon.com (NASDAQ:AMZN) vastly underperforming, with weaker guidance going forward.
The implication seems to be that in order to generate decent revenue, the companies will have to offer a number of discounts in order to