It's the holiday season - traditionally a time of strong consumer spending. Despite analyst concerns, recent market volatility seems unlikely to hurt sales this holiday season, thanks to low unemployment rates and accelerating wage growth.
In fact, a survey by the National Retail Federation (NRF) predicts that there will be 4.1% more holiday spending than last year, with consumers expected to spend $1,007 on average.
"Confidence is near an all-time high, unemployment is the lowest we've seen in decades, and take-home wages are up. All of that is reflected in consumers' buying plans," Matthew Shay, President and CEO of the NRF, said.
Another big contributing factor to this phenomenon is increased tax cuts for both consumers and businesses. The $1.5 trillion tax law passed by Republicans last year has fueled discretionary spending by endowing consumers with excess disposable income. This has ensured that the momentum driving the spending is distributed evenly across multiple industries, and is not an anomaly. This type of growth is healthy, despite claims that the US economy is running into a recession.
According to a survey conducted by the New York Times, 37% of Americans say their finances are more abundant than they were a year ago, while 17% say they are worse off.
"It will be a very strong year for retailers from a top-line growth standpoint and a very strong year for consumers to take advantage of the retail environment," said Steven Barr, leader of Consumer Markets at PricewaterhouseCooper.
However, it's not all smiles for the market. FAANG stocks plummeted in pre-market trading last weak and the share market is correcting itself. This could impact the disposable income of those heavily invested in a tech-heavy portfolio. FAANG stocks are down in part thanks to decreased demand for Apple (NASDAQ: AAPL) products.
Moreover, there's tension regarding the ongoing trade war with China, since the imposition of tariffs directly affects retailers who import inputs for their products from across the sea. Also, it's unclear whether the trade war will affect manufacturers positioned in China, but there's definitely a possibility of retailers hiking prices moving into 2019 to compensate for rising costs.
The Federal Reserve also indicated that there will be more rate hikes in the year to come, which will exert more pressure on retailers that have outstanding loans, potentially forcing them to raise prices as well.
Thus, while the retail industry itself is doing well based on its own fundamentals, it's still susceptible to the volatility of the current US macro environment.
"I think the concern that many retailers have as we look to 2019 is less about the things that they can control and more about the things that they cannot control," said Barr.