Trade Fears Hurt Consumer Sentiment: Should Retailers Worry?

Wall Street is juggling quite a few macro and micro issues at the moment, including U.S.-China trade dispute, Facebook data breach, apprehensions about three or more rate hikes by the Fed this year and latest being the airstrike on Syria. All these events have kept the market on tenterhooks with investors scurrying for safe havens. A clear reflection of these factors were visible in the recent outcome of the Consumer Sentiment data that declined from its 14-year high.

Per the preliminary report released by the University of Michigan, Consumer Sentiment index dropped to 97.8 in April from March's reading of 101.4, and also came below analysts' expectations of 100.5. Economists blamed negative news that popped up time and again for the nervousness in the market.

Do Retailers Need to Worry?

Apparently, consumers' expectations about the economy have somewhat retreated. A fall in consumer sentiment may impact consumers' spending pattern, which accounts for over two-thirds of the U.S. economic activity. Undoubtedly, reluctance on the part of consumers to spend more is the last thing retailers want.

Nevertheless, experts are of the opinion that consumer sentiment still remains at a decent level. Notably, the index inched up 0.8% this month from a year earlier. Published on The Wall Street Journal, chief economist of Pantheon Macroeconomics, Ian Shepherdson, said "the current conditions index spiked in March, presumably as people saw the tax cuts coming through, so a correction in April was always a decent bet."

Definitely, the retailers have nothing to fear as of now. A robust job market, massive tax cuts and sound economic fundamentals are likely to trigger consumer spending. Notably, a strengthening labor market may lead to gradual wage acceleration, and in turn boost consumer confidence. All these sound constructive for retailers.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report