Will consumers disappoint this holiday season?

While many firms are issuing positive forecasts for the holiday shopping season, economic data points to consumer confidence on the decline. Yahoo Finance’s Seana Smith and Myles Udland discuss.

Video transcript

SEANA SMITH: We want to continue talking about retail, because expectations like we just heard this holiday season are extremely high. Myles, you wrote about this in your newsletter out this morning. And I think the big takeaway is while the consumer has proven to be very resilient through the fall, now there's more and more data that's backing up this fear out there that maybe we won't see the consumers live up to some of these expectations that had been put forward here for the holiday season.

MYLES UDLAND: Yeah, it's a very strange set of circumstances for the economy, I guess as you'd expect in the middle of a global pandemic. But recent reads on consumer sentiment have not been good at all. You look at what we got from the Conference Board earlier today.

You know, their analysis on-- or rather the sub-index for the Conference Board's report that shows six-month-ahead expectations, it's now the lowest that it's been since March. So the way that people are looking at the future has been downgraded quite a bit. You look at consumer sentiment from the University of Michigan, and the expectations index there as well is at a three-month low.

Now interestingly, within both of these consumer sentiment reports, consumer confidence, whatever you want to call it, they missed expectations, yes. But the analysis, or the view that consumers have on the present condition of the economy, their current outlook for how they feel today is still kind of fine.

It was basically flat month over month, between October and November. So on the one hand, you have consumers that are looking at the next six months as basically the toughest that we've had during the whole of the pandemic, right?

If you want to look at this as a general read, do people think things are getting better or worse? Three months ago, they thought things were getting better, now they think things are getting considerably worse. That certainly would be concerning for an economy that's been driven so much by the consumer.

But if they think things are fine today, well maybe those holiday sales actually do hold up. I mean, Wells Fargo is out with a big splashy number a couple of weeks ago. 9% increase in their core retail group that they think you kind of proxies holiday sales, basically call it goods.

Back out anything that's services and gas. For November and December, a 9% increase would be more than double the year over year increase that we saw last year, when sales rose in the low 4%.

And that was during a booming economy. So I think there's still a case to be made the holiday season could be good. But in many ways, I think the economic data is probably going to argue, well you know, that was the last gasp. And now it's getting into the tough part.

But I mean, we've been saying this for months. Like in July, we said this is the last good month then you know, the CARES Act expires. Well, August was fine. September was fine. October was fine.

So I guess I'm of two minds here. The data is clearly saying this is something to be worried about, and this is a time that the economy could roll over. But consumers just haven't done that yet. And so I think it is kind of more-- maybe it's still like a show me story. Like, show me when the economy gets so bad. Because we have seen for months, and months, and months, and outperformance relative to these expectations.

SEANA SMITH: Yeah Myles, and going off that, I think a lot of it out there is just this expectation for more stimulus. So the longer and longer consumers have to wait for stimulus, the longer and longer it takes for Congress to reach some sort of deal, I think that could be concerning here for consumers as we get further into the holiday season.

And then of course, the big question is, who is going to come out on top? Is it going to be these names that have continued to outperform over the last six, seven, eight months during the pandemic? Meaning Target, Walmart, we saw such great earnings reports from them over the last couple of weeks.

Target, for example, their curbside pickup up over 500%. Shift, which is that home delivery service, up nearly 300%. And Walmart, same store sales were of course better than expected, their e-commerce sales up nearly 80%.

So it's hard to bet against some of these retailers that have proven time and time again that they will be successful, certainly-- especially in an environment like this. But I think to you look at these stocks, and then the question, of course, is whether or not this type of growth is sustainable.

Or what investors are looking for, just in terms of these numbers to really call a holiday season. Or for these-- specifically for these retailers, whether or not to call their holiday season successful. And I think that, right now, is up for debate, too.

MYLES UDLAND: Yeah, I think also that-- you know, looking through it-- looking at it through the lens of the publicly listed stocks that do well or poorly based on these sales is also kind of a different way of kind of skinning this cat, right?

I mean, we could talk about what the economic data suggests is going to happen. And I think that paints one story. But the stock market also paints another story. And you know, I guess the other thing, too, is as someone who's been writing about the impending shortcoming of this, that, and the other economic event, you know, maybe we've just all been wrong about this, right?

And then before something really bad happens, the vaccine comes along, and then everyone's worst fears aren't realized. I'd love for that to be the case. But again, we sort of find ourselves looking at a situation where, you know, household savings balances are coming down.

Support is not really imminent on the fiscal side. A number of programs, Jessica Smith wrote a great story about this on Yahoo Finance that was published on Wednesday, number of programs that have been helping consumers are about to roll off the books at the end of December.

So all of this is adding up for, I think, a very challenging beginning of next year, though. Again, I think we would love to be wrong, once again, about the real dangers facing the economic recovery right now.