Before Thanksgiving, we suggested that today’s consumers are financially healthier than in past years, which, we think, will drive a robust holiday spending season.
Some of the numbers reported appeared to be a bit Grinch-like. The National Retail Federation‡ reported that Thanksgiving weekend sales were down 11 percent and online sales posted negative growth as well.
Our research at UMB leads us to a more cheerful conclusion, for two primary reasons.
- Black Friday appears to be losing its reserve. You may recall that in the past retailers competed with one another to be the first store to open on Friday morning. Then they began opening the stores on Thanksgiving. Fast forward to today, when many retailers have promotional items on display prior to the holiday. Perhaps Black Friday has become Black November, meaning that the window of shopping days to be analyzed has become longer than just one weekend.
- Several online retailers announced robust sales gains. We believe online sales are growing nearly 30 percent this season. We think this is due to the adoption of mobile technology. Since online retailers are open 24/7, so is the option to shop. We are also seeing a shift from brick and mortar stores to online retailers and we expect this trend to continue.
The retail sales data, along with other recently released economic data, supports our forecast of greater than 3 percent GDP growth in the fourth quarter, giving us nice momentum into 2015.
In Part I of this report, we anticipated material job growth this holiday season. The non-farm payroll growth in November proved that to be accurate with a gain of 321,000 jobs, again, supporting GDP growth of well over 3 percent.
Clearly the labor market is strengthening. Unemployment stands at 5.8 percent, and we think it will continue to head lower throughout 2015. Job openings are at a level we haven’t seen since 2001.
The labor market, along with higher stock and home prices and lower energy costs, has boosted consumer confidence. So it was no surprise to us that the University of Michigan’s Consumer Confidence Index‡ has risen to a seven-year high.
Lastly, manufacturing data in the United States is hovering around a three-year high, also supporting our GDP forecast.
The bottom line is that all signs are leading us to believe that consumption will continue at a healthy pace. Since consumption is almost 70 percent of GDP, we think economic growth in 2015 will be between 3 to 3.5 percent; significantly higher than what we have seen throughout the last five years.
Given our optimistic economic outlook, we expect to see favorable returns in the stock market. In 2015 we expect 4 percent revenue growth and 6 percent earnings growth — that should lead to 10 percent total returns.
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K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.
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