Can Consumer Tailwinds Keep Retail Stocks In The Pink In 2024?

Consumers can expect a net $68 billion tailwind in 2024 from perks such as changes in social security and lower gas prices — a boost to discretionary spending for many that could provide some support for retail stocks.

Bank of America‘s $68 billion tailwind estimate includes a $76 billion boost from social security payments and $37 billion from lower gasoline prices. Offsetting these will be headwinds from reductions in the Supplemental Nutrition Assistance Program (SNAP) worth $23 billion and $22 billion from the resumption of student loan payments.

Much depends on how the economy shapes up in 2024. Growth is already showing signs of slowing, with the labor market starting to slacken and industrial surveys pointing to lower manufacturing growth.

To the consumer, it will be jobs that matter most. Those who lose their jobs over the next year will rely on insurance and savings, while those who fear their jobs are in danger will use any surplus money to add to their savings.

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Low-Income And Baby Boomers Boost

Bank of America predicts that low-income cohorts will see the biggest benefits from lower gas prices. They were also the main recipients of SNAP benefits which ended in March, but the impact of the loss of this benefit will be lapped in March 2024.

“Gas prices are typically most impactful to low-income consumers,” said analyst Jason Haas

Baby Boomers, the generation now in their mid-60s or over will benefit from a 3.2% increase in the Social Security annual cost of living adjustment. This follows an 8.7% increase in the same payment last year.

What Does This Mean For Retail?

Concerning the impact of these 2024 tailwinds on the retail sector, Bank of America suggests staying selective.

“Within our hardlines coverage, we still have a general preference for our more defensive names,” said Haas. “Consumers still are not prioritizing big-ticket discretionary items such as furniture, consumer electronics, and mattresses.”

So its stock selections are car parts and services companies O’Reilly Auto ORLY, Genuine Parts GPC, Driven Brands DRVN and Mister Car Wash (MCW, and discount retail Five Below FIVE and Ollie’s OLLI.

Millennial Drag And Flat Tax Refunds

Millennials, particularly those still paying off student loans, will see the biggest drag as the repayments holiday that started during the Covid pandemic ended in August this year.

Meanwhile, there will be few, according to BofA, who benefit from tax refunds in 2024. “Due to inflation, the IRS has increased tax brackets, the standard deduction, and many other inputs that go into tax calculations made at year end,” said Haas.

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