Wall Street's new worry: American consumers

One market strategist thinks the shopping malaise could contribute to a 'shallow US recession' early next year. Others disagree.

By MSN Money Partner Jul 14, 2014 12:20PM
Nicho Sodling/Folio Images/Getty Images
Man shopping for clothesBy Alex Rosenberg, CNBC

It's Wall Street's latest worry: The current state of the American consumer.

Despite a blockbuster June employment report, buffeted by positive auto sales and same-store retail sales numbers, many investors and strategists worry that American consumers just don't have the cash, or the willingness to spend it, that is required for the recovery to continue.

These concerns have recently come to the fore, as companies from Wal-Mart (WMT) to Rent-A-Center (RCII) have warned that slack consumer demand will weigh on results.

In a filing released on Thursday, Rent-A-Center CEO Robert Davis said that "Macro-economic pressures continue to burden our financially constrained consumers contributing to softer than expected demand in our U.S. business segments. Consequently, revenue and earnings for the second quarter 2014 will not meet expectations." (In response, the stock dropped by more than 10 percent on Friday.)

Some on Wall Street are ringing the alarm bell as well.

Nicholas Colas, chief market strategist at ConvergEx Group, warned on Friday that there's a chance stocks will get rattled by "a shallow U.S. recession starting early next year," caused by "slack consumer spending and a slower labor market," due in part to the Federal Reserve reducing its stimulative measures.

"From a jobs perspective, things are slowly healing. But I do think that the desire to spend is still somewhat sketchy," he told CNBC.com. "We're still at low levels of confidence compared to other recoveries."

Betting on the consumer has not been a great call this year. The Standard & Poor's 500 Index ($INX) consumer discretionary sector is up less than 1 percent in 2014, compared with a 6 percent rise for the index as a whole, making it the single worst-performing sector. (Of course, this comes after several years of outperformance.)

Some light on the consumer should be shed this week, as investors chew over preliminary consumer sentiment survey results for July, as well as retail sales numbers for June.

Societe Generale senior economist Brian Jones, for one, is looking for good news. After all, he notes that auto sales rose 1.2 percent in June, same-store sales tracked by the International Council of Shopping Centers rose a much-higher-than-expected 5.9 percent and nonfarm payrolls increased by 288,000 in June (a number Jones nearly nailed on the nose).

"To be downbeat on the consumer in this environment is kind of crazy," he proclaimed.

This week's earnings reports could also tell us a bit about the state of the consumer in the second quarter. Scott Nations of NationsShares is looking out to Taco Bell and KFC owner Yum Brands (YUM), which is expected to report on Wednesday after the close.

"Yum is really tied to China, so the actual earnings-per-share number might say more about the consumer in China than it does here. But I'll pay attention to the commentary -- what they have to say about the consumer in the United States, and whether or not higher gas prices are really pinching the consumer," Nations said.

More from CNBC

Jul 14, 2014 2:33PM
Household income is down almost 10% over the last 5 years.  Combine that with high energy and food inflation over the same time period - no wonder consumers are tapped out.  And this when interest rates are near record lows.  Imagine how bad it would be if interest rates were at historically-normal levels.

We're still in a depression, we're just doing a better job of hiding it.
Jul 14, 2014 3:47PM
Wall Street  needs to wake the F up!  Americans are tapped out - rising grocery prices, rising taxes, rising gas prices, rising healthcare costs and lower wages.  
Jul 14, 2014 3:59PM
The feds killed off the best consumers when they started the war on the middle class. We are over taxed, charged fees for everything, mandated to buy what we don't want, broken by the cost of educating our young and have had our work sent overseas by trade agreements that favor other countries over ours. Add life's other basics and you are left with a consumer who has not the means to spend on anything extra. If you are in a position to have a extra buck these days you hold on to it and do the best you can with what you have until you have no choice but to spend it. Welcome to the New USA where hard work nets you little and the words "Middle Class" mean even less. 
Jul 14, 2014 3:31PM
The middle class usually keeps these wheels turning, but with the inflation of everyday goods and gasoline (and taxes and health costs and "fees" on services) , the middle class has gotten much better about reducing discretionary spending. 

It's bad news to Wall Street, but for the average person, it probably signals that we've gotten wiser about where and how allocate our funds. 
Jul 14, 2014 3:56PM
Wall street is clueless as to how main street lives.
Jul 14, 2014 3:54PM
We barely have enough money to pay our bills!!
Jul 14, 2014 3:52PM
Just because Wall Street is humming along doesn't mean that Main Street is prospering as well.
Jul 14, 2014 3:54PM
Let's see,  lousy quality, nothing innovative, flatlined earnings, no customer service, and they really can't figure out why people aren't buying?
Jul 14, 2014 3:54PM

Rate of inflation exceeds my cost of living increases...therefore no extra money!!!!  It will take our government years and millions of our tax paying dollars to prove this in a study and then several years for our elected officials to decide what to do about it.  Genius!!

Jul 14, 2014 4:02PM

When the private sector squawks about paying even minimum wage (and HOWLS about raising it) and even the gainfully employed haven't seen a decent raise in years, WTF do you expect?





Jul 14, 2014 12:54PM
Rent-A-Center and Wally World. If that's what we base our economy on, then we are in trouble. These welfare champs are nothing but trouble.
the us consumer is cashed out

look the Obama admin thinks it's ok for Americans to live on minimum wage at 29 hours a week which is only $10,000 a year.

Yet they want to give $6,500 a month to foster parents (who are mainly illegal aliens themselves) for each illegal child they are willing to raise. That is for those of who who the educational system failed and can not multiply is $78,000 a year tax free to raise illegal aliens in the US
when US citizens are working for $10,000 a year if they can find a job (not tax free money) and can not get welfare health care and the illegal kids will because some states like Texas opted out of Obama Care and do not have to give people health care if the people can not afford it.

What world are we living in where illegal aliens are treated twenty times better than American citizens??? Obama should resign.

Ahhh, part time jobs, minimum wages still stuck in the 1990's, no home equity, gas prices high, healthcare high, scared by 2008.  The backbone of America, its middle class, is on its deathbed.  There's your real job creators, taking their last gasps.  The rich are richer than ever, we've been told they are the job creators.  Well, we're still waiting.
Jul 14, 2014 2:43PM
Rent-A-Center and Wal-Mart as indicators of socioeconomic robustness? All it says is that the poor are getting poorer, not that the rich aren't getting richer.
Jul 14, 2014 4:12PM
Lets see my income is the same as last year even with a raise, less hours this year.  Gas is almost $4 a gallon, food prices are up almost 4+% from beginning of the year.  I've had two rent increases this year and all of my utilities have increased.  So if you wonder why we aren't spending, its because there is nothing left to spend.  I work, pay my bills, eat and put gas in my car.  I have nothing left to spend and no I don't have an expensive car, expensive phone plan or any of that stuff.  I live well within my means and don't splurge.
Jul 14, 2014 3:46PM
Because maybe the consumers know that wall street is being perched up by the Fed.
Jul 14, 2014 4:09PM
Speakly strictly for myself, the economic downturn and loss of my job in late 2008 put me in a financial crisis of my own. I was so far behind on bills and had so much debt that it took me the last 6 yrs to climb out of the hole I fell into financially. I'm not rich like all the politicians and Wall Street idiots that think we should be spending our money. I used every spare cent I had to pay off debt and am happy to report that I am now debt free. So, now that I'm debt free, the last thing I'm going to do is start aquiring more debt. If I can't pay for it, I don't need it. And I also won't be spending my money foolishly, so yep, I'm one of those who doesn't have the "willingness to spend it", but what do you expect after the hell we the consumers have been through in the last several years.
Jul 14, 2014 3:09PM
I think we are in for much more than just a shallow recession within the next year. Just wait until the ACA employer mandate kicks in.
Jul 14, 2014 3:47PM
No has FREE cash to blow on Chinese made products !!  
Jul 14, 2014 3:48PM
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