November 30, 2017— The U.S. holiday shopping season was off to a solid start this past Thanksgiving weekend, with U.S. consumers feeling jollier than they have in recent years. While deals on Thanksgiving, Black Friday, Small Business Saturday, and Cyber Monday are watched closely by shoppers, sales data over this five-day period are scrutinized by analysts and economists for messages about what the holiday shopping season may bring for retailers. Historically, as much of 30% of annual retail sales have occurred between Black Friday and Christmas.

This year’s results were very positive. While in-store foot traffic over the weekend was flat to slightly down versus 2016, the “conversion rate” of browser to purchaser was higher, resulting in better sales results for brick-and-mortar stores (keeping in mind that reported earnings will be a function of the discounts offered to secure those sales). Online sales were particularly strong, with e-commerce sales on Thanksgiving and Black Friday showing an increase of 18%. Cyber Monday sales increased a similar amount, hitting a record $6.6 billion for the day and signaling success for retailers with seamless online capabilities, according to Adobe Insights. Perhaps not surprisingly, purchases are increasingly being made “on the go,” with roughly 40% of online sales reflecting purchases from a smart phone—a notable increase versus the 29% reported for the prior year. Because of this trend, companies and analysts are increasingly expending resources to track social media presence and digital engagement with brands, in an effort to anticipate consumer behavior.

What does all of this mean for the U.S. economy? It could mean there are simply more of us on the “nice list” this year, but it more likely reflects continued momentum from the consumer and, by extension, corporate earnings. Third-quarter earnings saw over 70% of companies in the S&P 500 beating estimates, with year-over-year earnings growth of more than 6.5%, though consumer discretionary stocks were generally weaker. The U.S. consumer is without a doubt benefiting from a strong labor market, low inflation, and increasing net worth (the latter of which is thanks in part to a continued bull market for stocks). All of this is contributing to consumer confidence at cycle highs (with a notable increase in confidence for middle-income households) and increased private consumption, good signs for the overall economy. Also helping consumers’ balance sheets are low interest rates. Though the low-rate environment poses a challenge for retirees and income-focused-investors, it, along with post-recession deleveraging, has left the U.S. consumer with very manageable total debt obligations (measured by the consumer debt service ratio; see Figure 1). We are encouraged by the health of the U.S. consumer, but we note that some of this euphoria is coming at the expense of higher levels of outstanding credit card debt and lower savings rates (Figure 2), both of which reduce the consumer’s cushion in the event of a reversal in labor market or economic growth.

Figure 1

Consumer debt service ratio (%)


As of September 30, 2017. Represents the ratio of consumer debt payments (including interest) to disposable personal income.

Source: Bloomberg, Bureau of Economic Analysis

Figure 2

Credit card debt outstanding (% y/y)                                     Personal savings rate (%)


As of September 30, 2017. Personal savings rate is as a percent of disposable income.

Source: Bloomberg, Bureau of Economic Analysis, New York Fed Consumer Credit Panel/Equifax

This year’s Thanksgiving weekend sales were the most positive they have been in years. To be fair, the Thanksgiving weekend is not a perfect means of projecting total spending for the holiday season. In fact, prior years have seen strong Black Friday weekend sales, only to realize that demand was merely being pulled forward, leading to an early-December lull in retail activity. It is also difficult to compare this short period’s sales from year to year, as retailers are evolving to include more sales channels such as mobile devices. In our view, multi-channel distribution (people going to stores and also buying things online) is contributing to structurally lower inflation. On top of that, the start of the promotional season is a moving target, as some retailers have gone back and forth on opening Thanksgiving Day, while others have tried to front-run Black Friday by offering more deals earlier in the month. These factors make an apples-to-apples comparison challenging.

Core narrative

In sum, this past weekend’s strong showing reaffirms our core narrative, which is centered on expectations for solid global economic growth over the next year and is reflected in an overweight to equities. We have confidence in the health of the U.S. economy and, the global outlook. The U.S. consumer is in good shape, and we are monitoring some areas of weakness around the periphery, including debt levels. We continue to recommend a neutral weight to U.S. equities versus our strategic benchmark and an overweight to non-U.S., where relative valuations and economic fundamentals are more compelling.


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