Wall Street will navigate a series of earnings releases and data points focused on the U.S. consumer this week as sentiment wanes into the summer months amid rising jobless claims and a slowing domestic economy.
The Commerce Department will publish its regular reading of April retail sales on Tuesday, with analysts looking for a modest rebound in spending from March levels, although the headline gain of 0.7% will likely be powered by higher spending on gasoline.
Stripping away gas station sales, as well as those from auto dealers, building materials and office supply stores and tobacco receipts, the so-called 'control group' of retail sales, a more predictable reading of consumer strength, is likely to rise 0.3%, according to Street forecasts, after a -0.3% decline in March.
That rebound, however, may not reflect the caution evidenced in retail hiring, with the sector leading the pace of layoffs over the month of April with nearly 15,000 job cuts, a 270% increase from the same period last year that brings the year-to-date total to around 36,115, according to figures from Challenger, Gray & Christmas.
“Retailers and Consumer Goods Manufacturers are preparing for a tightening in consumer spending, particularly with the Fed’s hike to interest rates in an attempt to control inflation,” said the group's senior vice president Andrew Challenger.
A softer reading of the University of Michigan's benchmark consumer sentiment index last Friday underscored some of those concerns, with the headline number falling more than six points in April to 57.7 points, and long-term inflation expectations rising by 20 basis points to 3.2%.
Data from Bank of America, meanwhile, suggests April spending on debit and credit cards fell 1.2%, the first year-on-year decline since February of 2021, numbers it says are "consistent with positive but weak GDP growth in 2Q 2023 and a mild recession thereafter."
"The shift out of goods and into leisure has been well documented, durable goods spend has been declining for two years, but the team points out that leisure service spend might have also peaked—airlines and lodging were among the weakest categories in April," Bank of America said. "Lower income households continue to outperform higher income households."
The trio of big retail names reporting earnings with week should also provide clues as to the direction of consumer spending and, by extension, its impact of U.S. growth prosects.
Home Depot (HD) will get things rolling on Tuesday with its first quarter earnings report prior to the start of trading. Analysts are looking for a bottom line of $3.80 per share, down around 7% from last year's levels, with relatively flat sales of around $38.3 billion.
Home Depot reiterated that it sees a 'mid single digit' earnings decline for the full fiscal year, with comparable sales flat to 2022 levels, as home improvement spending wanes.
Data from foot traffic analytics firm Placier.ai suggests stores visits are showing modest improvements since the start of the year, but are still down notably from last year's levels.
Target Corp. (TGT) will follow Home Depot with first quarter earnings on Wednesday, with investors focused on the group's profit margins following a disappointing 2023 outlook earlier this year.
Target said in late February that first quarter earnings would likely come in between $1.50 and $1.90 per share, with same-store sales ranging from a low-single-digit decline to a low-single-digit increase. The Street is looking for adjusted earnings of $1.77 per share, on revenues of $25.34 billion, with margins likely improving as its inventory position continues to decline and discounts required to reduce it give way to modest price increases.
Margins will also be in focus when Walmart (WMT) winds up the big retail earnings run on Thursday with its March quarter update. The world's biggest retailer has seen its share of grocery sales rise to more than half its overall total, helping same store sales improve notably from last year but reducing the amount of profit it can squeeze from each visit in a low-margin business.
As a result, Walmart is expected to see earnings rise a penny from last year to $1.30 per share, even as revenues jump 5% to $148.54 billion.
Walmart's own forecast for the March quarter sees adjusted earnings of between $1.25 and $1.30 per share, with sales rising between 4.5% and 5%.
The trio's first quarter updates will not only provide an important finger on the pulse of the U.S. consumer, but could also add some much-needed breadth to a tech-lead stock market that is struggling to escape from its recent trading range, according to LPP's chief global strategist Quincy Krosby.
"Big established technology names didn't disappoint during the earnings season, and for the most part, offered guidance that was reassuring, something financial markets needed to hear," Krosby said. "This week's calendar could deliver a chance for the market to expand its direction with a broad spectrum of economic releases, including housing, retail spending, manufacturing ... with Walmart and Target's earnings shedding light on the strength of the all-important US consumer."
