Strong Holiday Spending: Outpacing Wage Gains?

Summary

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WSJ Your Money Briefing — “Strong Holiday Spending: Outpacing Wage Gains?”

Date: December 18, 2017
Host: JR Whalen
Guest: Sharon Nunn, Wall Street Journal Economics Reporter

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Episode Overview

In this episode, host JR Whalen discusses surprising strength in American consumer spending during the 2017 holiday season with WSJ economics reporter Sharon Nunn. The pair explore the drivers behind robust retail sales, dissect how brick-and-mortar shops have outperformed expectations despite e-commerce competition, and flag potential pitfalls as rising spending outpaces wage growth and savings.

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Key Discussion Points & Insights

1. Surge in Consumer Confidence (00:40–01:12)

• High Consumer Confidence:
  Sharon points out that 2017 saw the highest consumer confidence levels in 17 years, dating back to 2000.

  “This year, consumer confidence hit a 17 year high. So right now consumers are more confident than they have been since 2000.” — Sharon Nunn (01:02)

2. Strength in Brick-and-Mortar Retailers (01:12–02:03)

• Brick-and-Mortar Outperforming Expectations:
  While e-commerce continues to expand, large retailers like Macy’s, Kohl’s, Target, and Walmart posted solid sales results compared to previous quarters.
• Caveats in Retail Metrics:
  Sharon stresses that improvement is partly optical, as many chains closed underperforming stores; stronger sales are concentrated among surviving locations.

  “...Several of these retailers have closed so many of their stores that the numbers at the stores that are open have gone up.” — JR Whalen (01:46)

3. Inventory Management and Store Strategies (02:03–02:38)

• Inventory Practices Shift:
  Sharon notes a key change: retailers carried less inventory into the season, reducing the need for steep discounts that cut into profit last year.

  “This year they did better about that. They cut back inventory, so they didn't have to offer up those items at such inexpensive prices.” — Sharon Nunn (02:26)

4. International Tourism and Currency Effects (02:38–03:06)

• Weaker Dollar Boosts Tourist Spending:
  The 2017 holiday season benefited from a softer U.S. dollar, encouraging more international tourist spending, compared to last year when a strong dollar deterred purchases.

  “...The dollar is a little bit weaker this year. So, yeah, it was a little bit easier for international tourists to buy some products because they're cheaper in whatever currency they have back home.” — Sharon Nunn (02:48)

5. Spending Outpaces Income and Savings (03:06–03:44)

• Rising Debt Concerns:
  Despite good news for retailers, Americans’ spending growth is surpassing wage gains, causing a drop in savings rates and a rise in borrowing.

  “Analysts are projecting that if Americans want to keep up with their current spending habits, but their wages aren't increasing, they're going to have to start taking out debt. And we have seen increasing levels of debt this year.” — Sharon Nunn (03:31)

6. Season Outlook and Projections (03:44–04:17)

• 2017 Set for Best Holiday in Years:
  The National Retail Federation projects a 4% increase in holiday spending versus 2016, on track for the strongest season since 2014.

  “So far, they have projected that consumers nationwide are going to spend about 4% more during the holiday season than they had in 2016. That would make 2017 the strongest holiday season since 2014.” — Sharon Nunn (03:57)

7. Federal Reserve Reaction (04:17–05:00)

• Interest Rate Hike Looms:
  The Federal Reserve plans its third rate increase of the year, buoyed by economic and consumer spending data. However, they remain cautious given middling wage growth and low inflation.

  “The decision to raise rates has been a bit of a fraught process...some economists and Fed policymakers have questioned whether or not the economy is strong enough to handle an interest rate increase. And this retail spending report certainly points to the fact that spending is up and GDP could also be up next quarter.” — Sharon Nunn (04:33)

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Notable Quotes & Memorable Moments

• On Consumer Confidence:
  “Consumers are more confident than they have been since 2000.” (Sharon Nunn, 01:02)
• On Retail Metrics:
  “Several of these retailers have closed so many of their stores that the numbers at the stores that are open have gone up.” (JR Whalen, 01:46)
• On Borrowing:
  “If Americans want to keep up with their current spending habits, but their wages aren't increasing, they're going to have to start taking out debt.” (Sharon Nunn, 03:31)

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Key Timestamps

• 00:40 — Introduction to stronger than expected holiday spending
• 01:02 — Consumer confidence hits a 17-year high
• 01:46 — Impact of store closures on retail metrics
• 02:26 — Retailers shifting inventory strategies
• 02:48 — Influence of a weaker US Dollar on tourist shopping
• 03:31 — Analysis of rising spending outpacing wage growth
• 03:57 — 2017 holiday season projections from the National Retail Federation
• 04:33 — Federal Reserve’s rate hike decision in context of economic data

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Conclusion

This episode unpacks a robust, though nuanced, snapshot of holiday spending activity in late 2017. Optimistic consumer sentiment and smarter retail strategies yielded a boon for traditional stores and the overall economy, but the episode also raises caution about Americans’ increasing reliance on debt—pointing to larger questions about the sustainability of current spending trends.

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Transcript

[A]

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[B]

Welcome to youo Money Matters. I'm JR Whalen in New York. There's going to be a little less coal from Santa Claus this season and more gifts as American spending has outpaced expectations. Wall Street Journal economics reporter Sharon Nunn joins us from our Washington bureau to discuss. So so Sharon, a big part of this boost in spending comes from confidence on the part of consumers.

[C]

Yes, that's true. This year, consumer confidence hit a 17 year high. So right now consumers are more confident than they have been since 2000.

[B]

And what's significant in your story in the Wall Street Journal is how many big brick and mortar stores, how well their sales are despite the strength of online shopping destinations.

[C]

Yeah, well, I guess, I guess we should put a caveat on that. It's kind of up to interpretation as to how, quote, unquote, well, they're doing, but they're certainly doing better. And that's the key part of the reason why we saw so much growth in holiday spending this November as compared to November's in the past. Large stores like Macy's and Kohl's and Target and Walmart have all done significantly better in previous quarters.

[B]

But you know, there could be some reading into the data here because that's required here because several of these retailers have closed so many of their stores that the numbers at the stores that are open have gone up. Is that something that you really have to do to analyze the numbers?

[C]

Yeah, that's certainly a part of it. Another key part of this massive November boost in holiday spending that we saw was the fact that last year the holiday season was pretty weak for retailers overall. And the reason it was so weak as all of these stores. So Kohl's and Macy's are kind of notorious for having these great, huge sales, but that's because they have so much inventory which actually cuts into their profits. So this year they did better about that. They cut back inventory, so they didn't have to offer up those items at such inexpensive prices.

[B]

Oh, so they were more prepared for the season this year.

[C]

Exactly, exactly.

[B]

You know, it also seems that international tourists are benefiting from the US Dollar this year compared to last year when it was a rising dollar that kind of weighed on their desire to shop.

[C]

Yeah, exactly. And that was another thing that actually contributed to why we saw such a weak holiday season for brick and mortar retailers. But the dollar is a little bit weaker this year. So, yeah, it was a little bit easier for international students to buy some products because they're cheaper in whatever currency they have back home.

[B]

So there is a lot of good news. But there is a fly in the ointment, and we'll touch on that in just a moment. You're listening to youo Money Matters from the Wall Street Journal. Welcome back, everybody. So, Sharon, strong spending is no doubt good news for retailers this holiday season, but as you point out in your story, spending is outpacing income gains, which translates to Americans saving at a slower rate. And that could actually catch up with them at a later date.

[C]

Exactly. And analysts are projecting that if Americans want to keep up with their current spending habits, but their wages aren't increasing, they're going to have to start taking out debt. And we have seen increasing levels of debt this year.

[B]

So, Sharon, the numbers we're talking about are for late November, which is Black Friday and Cyber Monday. But in terms of the National Retail Federation that follows these numbers very closely, how are they seeing the whole season entirely?

[C]

Well, so far they have projected that consumers nationwide are going to spend about 4% more during the holiday season than they had in 2016. That would make 2017 the strongest holiday season since 2014. And so far, their chief economist is saying the US does appear to be on track to meet that goal.

[B]

And then the Federal Reserve this week indicated that they are going to raise interest rates. It will be a third time this year. They are very confident in the way the economy is moving along. And this consumer spending is pretty good wind to their back.

[C]

Yeah, exactly. The decision to raise rates has been a bit of a fraught process, I guess. Inflation has remained pretty low. Wage growth has been pretty low as well. And so some economists and Fed policymakers have questioned whether or not the economy economy is strong enough to handle an interest rate increase. And this retail spending report certainly points to the fact that spending is up and GDP could also be up next quarter.

[B]

Well, the retailers get five weekends between Thanksgiving and Christmas this year, thanks to an early Thanksgiving we will see if that results in good monetary gifts under the tree for them. Sharon Nunn joining us from our Washington bureau. Sharon, thanks so much for your time.

[C]

Thanks so much for having me.

[B]

And thank you for listening to your Money matters. I'm JR Whalen in New York for the Wall Street Journal.

[A]

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[B]

the Wall Street Journal.

[A]

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