A Key Consumer Metric Augurs Well For Upcoming Holiday Season

Consumers are after all a segment that cannot be cowed down by see-sawing fortunes of the U.S. presidential race. Armed with the confidence bestowed by a healthy job market, consumers look set to make this holiday season their own.

A report released earlier in the day by the Bureau of Economic Analysis wing of the Commerce Department showed that consumer spending rose 0.5 percent month-over-month in September, right in line with estimates.

This represents a notable improvement from the 0.1 percent drop in August.

A small pick in pricing pressure was evident as the price consumption expenditure index rose 1.2 percent year-over-year, up from 1 percent in August. However, the annual rate of the core PCEI, the Fed's favored inflation gauge, remained unchanged at 1.7 percent.

Spending on goods rebounded by 0.8 percent month-over-month, up from a 0.7 percent decline, with both durable as well as non-durable goods spending improving. However, services spending growth remained static at 0.3 percent.

Meanwhile, the report also showed that personal income growth accelerated to 0.3 percent from 0.2 percent, slightly slower than the 0.4 percent growth predicted by economists.

The personal savings rate was at 5.7 percent, down from 5.8 percent in August. This shows that consumers are loosening their purse strings, showing their willingness to spend.

The data come close on heels of last Friday's GDP report, which showed a slowdown in consumer spending.

Trade Bodies Upbeat

The National Retail Federation predicted retail sales, excluding autos, gas and restaurant sales, to increase a solid 3.6 percent year-over-year to $655.8 billion in the combined November to December period of 2016. This is more than the 10-year average of 2.5 percent growth and the seven-year average of 3.4 percent growth since the current recovery began in 2009.

This is despite the trade body noting a lackluster start to the year, with a long summer and unseasonably warm fall. NRF Chief Economist Jack Kleinhenz said, "Increased geopolitical uncertainty, the presidential election outcome and unseasonably warm weather are the main issues at play with the greatest potential to shake consumer confidence and impact shopping patterns."

The International Council of Shopping Centers pitched its estimate at 3.3 percent compared to the 2.2 percent increase in 2015. The average spend of holiday shoppers was estimated at $683.90.

Consumer Sentiment Shows Somber Mood

The latest survey by the Conference Board showed that U.S. consumer confidence dipped to a three-month low in October, as consumers expressed difficulty in finding jobs. The index fell to 98.6 in October from 103.5 in September.

Final consumer sentiment reading released by the University of Michigan showed a dip in consumer sentiment to the lowest level since 2014.

Strong Online Sales Predicted

Data released by Adobe Systems Incorporated ADBE last week showed online sales could swell to $91.6 billion this holiday selling season.

The strong expectations are predicated on an extended holiday selling season, which Adobe predicts to begin much earlier and last past the "typical" season. The company sees 53 consecutive days (or 57 calendar days) notching up online sales in excess of $1 billion compared to 31 consecutive days in 2015.

Retail Earnings On The Docket

Against this backdrop, retail earnings for the third quarter and commentary concerning the trends into the holiday selling season might come under close scrutiny. Wal-Mart Stores, Inc. WMT, which is due to report its financial results on November 17, warned earlier this month at its investor day presentation that full-year earnings are expected at $4.15–$4.35 per share, flat with last year. The company also said it would go slow on its store openings.

The upcoming days will give more clues on how retailers would fare in the busiest periods of their fiscal year. Stay tuned to updates on retail earnings and holiday sales trends from Benzinga.