It’s Black Friday! Expect frantic buying of the best bargains at retailers across all towns and cities. But this post-Thanksgiving shopping spree will be watched closely by investors for signs that consumers are beginning to tighten their belts.

If, as many economic analysts suggest, a downturn in growth has already started, then a slowdown in consumer activity must surely follow.

The most recent retail sales data were disappointing, showing a 0.1% month-on-month decrease in spending in October following a 0.9% increase in September. This was led by a 1.7% decrease in sales at miscellaneous store retailers, which includes such names as Target Corp (NYSE:TGT), Lowe’s Companies Inc (NYSE:LOW) and Walgreens Boots Alliance Inc (NYSE:WBA).

Shares in Lowe’s have fallen 2.6% in the week since the data, while Walgreens is down 2.5%. Target shares have risen 0.5%.

Earlier this week, Lowe’s reported third-quarter earnings that beat expectations, but a disappointing full-year outlook underlined fears that consumer spending will slow this quarter.

On the same day Best Buy Co Inc (NYSE:BBY) also issued a warning: “In the more recent macro environment, consumer demand has been even more uneven and difficult to predict. Based on the sales trends in Q3 and so far in November, we believe it is prudent to lower our annual revenue outlook.”

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The SPDR S&P Retail ETF (NYSE:XRT), which tracks the entire U.S. retail sector, has fallen 16% since hitting its most recent peak in February. But hopes that easing inflation and lower interest rates next year will soften any consumer decline has driven a near 6% rally in November.

How Much Does Black Friday Matter?

Anecdotal evidence suggested another blockbuster shopping period, the proof of which can only be assessed when the November retail sales numbers are in.

But Black Friday remained a culturally and economically significant event. Among the explanations for the name “Black” Friday is that it was the day when retailers break even for the year and start trading in the black — as opposed to in the red.

True or not, the sales period that starts with Black Friday through to Cyber Monday is expected this year to attract an estimated 182 million shoppers, according to a survey by the National Retail Federation (NFR). This is 15.7 million more than last year.

But there’s also evidence that retailers are now looking to catch an earlier slice of the bargain-hunting pie, with online promotions and offers starting well in advance of the Thanksgiving holiday period.

“Early shopping is a trend we have been tracking for several years, and this year, there is evidence the deals and promotions from October resonated with consumers,” said Paul Rist, strategist at Prosper Insights & Analytics.

“More than 40% of shoppers say they took advantage of retailers' October sales to shop specifically for holiday gifts, décor and other seasonal items,” he added.

Tightening The Belt

Economic downturns are marked by slowing consumer activity. While sentiment held up well during the current period of high inflation and interest rates, once people start losing their jobs — or fear they might — they start to spend less and save more.

Job growth is slowing and expected to slow further, while jobless claims are — from a fairly low base — starting to creep higher. Investors in the retail sector must eye this data carefully, and wait until there’s proper evidence that Black Friday 2023 was a blockbuster event.

And, above all, watch for any further signs in the quarterly reports that retailers are shaping up for a consumer slowdown.

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