The health of the U.S. consumers, who account for about two-thirds of the economy, will be in focus next week as investors await a report on retail sales and earnings from major companies such as Procter & Gamble, Netflix and Tesla. The data and results will offer clues on how the consumers are coping with higher interest rates, inflation and geopolitical tensions.
Retail sales expected to rise modestly in September
The U.S. Commerce Department will release the retail sales data for September on Tuesday, which is expected to show a modest increase of 0.3% on a monthly basis, according to economists polled by Reuters. The figure would mark a slowdown from the 0.7% growth in August, which was boosted by strong spending on cars, clothing and online purchases.
Retail sales are a key indicator of consumer spending, which has been resilient in the face of higher borrowing costs and rising prices. The Federal Reserve has raised interest rates three times this year and is expected to hike again in December, making it more expensive for consumers to finance big-ticket items such as houses and cars.
However, some analysts warn that a number that is too strong or too weak could spook the markets, which have been rattled by fears of a global slowdown, trade tensions and geopolitical risks. A stronger-than-expected retail sales report could fuel inflation worries and prompt the Fed to tighten monetary policy more aggressively, while a weaker-than-expected report could signal a loss of momentum in the economy.
Earnings season to reveal consumer trends
The third-quarter earnings season will also provide insights into consumer behavior, as several companies that cater to different segments of the market will report their results next week. Among them are:
- Procter & Gamble , the world’s largest consumer products maker, which will report its earnings on Tuesday. The company, which sells brands such as Tide, Gillette and Pampers, is expected to post a 3.4% increase in revenue and a 5.6% rise in earnings per share, according to Refinitiv data. Investors will look for signs of how the company is coping with rising commodity costs, currency headwinds and competition from online rivals.
- Netflix , the leading streaming service provider, which will report its earnings on Wednesday. The company is expected to add 5 million subscribers in the third quarter, down from 5.5 million in the same period last year, according to Refinitiv data. Investors will watch for any impact from the launch of new streaming services by rivals such as Disney and Apple, as well as any guidance on future content spending and pricing.
- Tesla , the electric vehicle maker, which will report its earnings on Thursday. The company is expected to post a loss of $0.46 per share, compared to a profit of $2.90 per share in the same quarter last year, according to Refinitiv data. Investors will focus on the company’s progress in ramping up production and deliveries of its Model 3 sedan, as well as any updates on its legal and regulatory issues.
- Las Vegas Sands , the casino operator, which will report its earnings on Thursday. The company is expected to report a 1.9% decline in revenue and a 9.4% drop in earnings per share, according to Refinitiv data. Investors will monitor the company’s performance in Macau, the world’s largest gambling hub, which has been hit by a slowdown in Chinese visitors amid trade tensions and a weakening yuan.
- American Airlines Group , the largest U.S. airline by passenger traffic, which will report its earnings on Friday. The company is expected to report a 2.9% increase in revenue and a 13.8% rise in earnings per share, according to Refinitiv data. Investors will look for any impact from higher fuel costs, labor disputes and weather disruptions.
Consumer sentiment dips for third straight month
The outlook for consumer spending may also be influenced by consumer sentiment, which has been declining for three consecutive months amid concerns over inflation, interest rates and trade wars. The University of Michigan’s consumer sentiment index fell to 99 in October from 100.1 in September, according to a preliminary reading released on Friday.
The index measures consumers’ attitudes toward current economic conditions and future expectations. A lower reading indicates less optimism and more pessimism among consumers, which could translate into lower spending.
The survey showed that consumers expected inflation to rise by 2.9% over the next year, up from 2.8% in September and the highest level since March 2015. Consumers also expressed more uncertainty about their income prospects and job security.