We May See 2% Holiday Shopping Growth

The consumer will probably weaken in the next few weeks as the spread of COVID-19 is coming at the worst time for the economy. Some thought the expectation for 3.6% to 5.2% growth was too high. There will be low single-digit growth. 

That will specifically call for 2% growth just so we can see how accurate that turns out when the data is finalized in January. Final predictions must be made now. Black Friday will likely be weak, but Cyber Monday will be solid. That depends on how internet retailers decide to time their sales. 

It’s obviously a lock that internet sales growth will dramatically outpace in person sales. Medical workers at some hospitals will be taking Pfizer’s vaccine next week, but broad distribution is still a few weeks away.

Redbook same store sales growth rose from 1.7% to 2.8% in the week of November 21^st which is the week before the holiday shopping season starts. We can’t take that increase to mean much because it has been hovering in the low single digits for weeks. 

If growth was to stay above 3% for 2 weeks, we would take notice, it's doubtful it will this year. Consumers are worried about the virus spreading even though vaccines should save the day by the spring.

Consumer Confidence Falls

November consumer confidence report showed weakness and missed estimates which makes sense given the pandemic. It was far from a disaster though. This won’t alarm traders. It certainly didn’t hurt stocks on Tuesday as the retail industry rose 1.8%. It is up an enormous 22% month to date. And it’s at a record high. Somehow, we are seeing euphoria in retail stocks, while consumers are getting more concerned. This is all because of vaccine optimism.

Vaccines will be fully priced in by the time they are administered. Look for more gains in the reopening stocks in the next 2 months. More importantly, look for more losses in the work from home stocks. They aren’t down much. Zoom is only down 24.8% from its peak despite the fact that the economy has a strong chance of going back to normal next year. The firm will have tough comps and less demand. That is a disaster for the stock. 

Specifically, consumer confidence fell from 101.4 to 96.1 which missed the consensus of 98. We are headed in the wrong direction at exactly the wrong time. If it wasn’t for the obvious catalyst next year, investors would be scared of this. 

The present situation index fell slightly from 106.2 to 105.9. The expectations index fell sharply from 98.2 to 89.5. That’s because of COVID-19. Consumers don’t have the luxury of looking past the virus-like traders do because they face potential job losses and could lose their pandemic benefits.

It makes perfect sense to do another stimulus because the consumer will be hung out to dry for a couple of months. However, the government is dysfunctional so nothing will happen until after the inauguration. That’s also when the stimulus won’t be needed as much. 

One can argue that focusing on politics now is more important than 3 weeks ago because the Senate is still up for grabs. There haven’t been any new polls to digest though. We will need to wait until after the holiday to get more data.

Mastercard Data From November

Net percentage of consumers expecting business conditions to improve in the next 6 months fell from 20.1% to 7.6%. That’s a solid drop. They are right about the next 3 months, but 6 months from now business conditions will be better because COVID-19 will be gone. The table below shows additional information on how the consumer is doing before Black Friday.

As you can see, Mastercard volume growth fell 1 point from the 2^nd to the 3^rd week of November. That’s quite good since the virus has had large impacts on the Midwest. This suggests the weakness will be much closer to the summer than the spring even though the 7 day average of hospitalizations is higher than it was in the spring. 

7 day average of deaths is approaching the mid-point between the 1^st and 2^nd wave. It will peak slightly above the midpoint (about 1,700).

3^rd Wave Is Ending

A 3^rd wave of this terrible virus is probably a few weeks from being over if Thanksgiving doesn’t increase the spread again. As you can see from the chart below, the 7 day average of cases in the Dakotas is falling. That’s important because those states were the worst of the 3^rd wave and two of the earliest states to feel its brunt.

The 7 day average of testing continued to increase, while case growth is slowing which means the positivity rate is falling. And the 7 day average of tests is 1.789 million, while the 7 day average of new cases is 169,381. We can expect the 7 day average of cases to fall in the first week of December if Thanksgiving wasn’t a factor. 

There are now 88,080 people in the hospital. That will probably peak in mid-December if the holidays aren’t a big issue. The 7 day average of deaths is 1,583. It won’t break the spring high, but we can’t make light of over 30,000 people in December dying.

Conclusion

Consumer confidence fell, but Redbook same store sales growth rose and Mastercard spending growth was solid. Further good news, cases are falling in some of the hardest-hit states. We might see better numbers by mid-December if the holidays don’t increase the spread. 

This market is laser-focused on the vaccines because in 3-4 months, the pandemic could be virtually gone. Vaccines will start to go out to first responders next week. By January, the full rollout of the vaccines will begin. Herd immunity should be achieved by March now that AstraZeneca’s vaccine was proven to be effective.