Nearly twenty leading retailers expressed a shared sentiment at the 30th annual Global Retailing Conference hosted by Goldman Sachs on Tuesday: The American consumer has exhibited greater resilience in 2023 than initially anticipated. However, a range of catalysts looms on the horizon, suggesting a potential slowdown.
Lululemon CEO Calvin McDonald conveyed this outlook to investors, asserting, “The challenges in the marketplace are going to continue.” Lingering concerns such as persistent inflationary pressures affecting consumers’ purchasing power persist. Additionally, the impending end of the student loan moratorium on October 1 raises uncertainty about the discretionary income available for spending on goods after meeting financial obligations.
Tractor Supply (TSCO), a standout performer during the pandemic, with its stock value nearly tripling since its nadir in March 2020, acknowledges its vulnerability to potential headwinds. The retailer specializes in products for home improvement, lawn care, and at-home farming. Fueled by newfound household hobbies arising from the pandemic, Tractor Supply’s annual revenue surged from $8.3 billion in 2019 to $14.2 billion in 2022. Chief Financial Officer Kurt Burton attributes this growth surge primarily to millennial customers. He noted that while the company’s millennial clientele tend to be “more affluent” than the average consumer, the resumption of student loan payments is a factor they are closely monitoring. Burton emphasized, “The student loan repayment is certainly one that we watch…anything that takes money out of the wallet…is harder for the consumer and takes some of that spend away from the goods and services that they spend on. So I think it’s one to be very conscious of.”
The headwinds that led many economists to foresee a potential recession earlier in the year still persist. However, the extent to which they will tangibly impede consumer spending remains uncertain. Walmart CEO Doug McMillon observed, “It felt to me like because of inflation that things were going to be tougher this year than they had been…And so I don’t know exactly what’s going to happen 12 months from now, but it feels like because of employment wages, some disinflation, that things kind of hang in where they are.”
Goldman Sachs’ economics research team contends that student loan repayments could shave off 0.5 percentage points from fourth-quarter economic growth. Nevertheless, they posit that these risks “lean toward a smaller effect,” given President Biden’s implementation of income-driven payment plans that could delay borrowers’ payment obligations starting in October. Nonetheless, Goldman Sachs’ economists argue that an impending government shutdown and the potential for a United Auto Workers strike, coupled with the student loan renewal, are likely to impede consumer activity in the fourth quarter.
In a research note titled the “Q4 Pothole,” Goldman Sachs economists outlined three key factors that could reduce gross domestic product growth from a projected 3.1% in Q3 to 1.3% in Q4. Chief economists Alec Philips and Ronnie Walker predict that this deceleration will be “shallow and short-lived,” forecasting a rebound to 1.9% GDP growth in the first quarter of 2024, as temporary impediments subside and income growth reaccelerates on the back of sustained robust job growth and rising real wages.
In summary, the American consumer has demonstrated remarkable resilience in 2023 despite facing higher prices, the imminent end of the student loan moratorium, and the specter of a potential government shutdown. These topics were central to discussions at the Goldman Sachs 30th annual Global Retailing Conference. Retailers contend that while conventional economic headwinds persist, their true impact on consumption remains uncertain. The potential implementation of a student loan repayment program by the Biden administration may mitigate some of these concerns. Goldman Sachs analysts anticipate a temporary dip in fourth-quarter economic growth, with expectations of a swift recovery in the first quarter of 2024.
Source: Yahoo Finance