Opinion: 5 signs a consumer slowdown may kill this stock-market rally – MarketWatch

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Certain jobs like coal mining and fracking get a lot of press these days, in part because those industries are important supporters of President Donald Trump’s agenda.

But according to the Bureau of Labor Statistics, in March, only about 52,000 Americans worked in the coal mining industry, and roughly 183,000 worked in oil and gas extraction. Those are literally rounding errors when taken in the context of the 143.7 million nonfarm jobs across the country.

Perhaps even more surprising to some is that manufacturing — an industry the president talks about nearly nonstop — employs just under 12.4 million, or less than 9% of the total workforce.

So what makes America’s economy and labor market tick?

Simple: consumers.

The retail trade industry, from grocery stores to hardware stores to used car lots, employs 15.8 million Americans, or roughly 11% of the job market. On top of that, hospitality jobs at restaurants and resorts employ another 15.5 million, or another 11%.

In other words, if you’re looking for mineral rights in national parks to spark an economic boom, you’re misguided.

Instead, investors should be paying close attention to consumer and spending trends if they want to get a sense of where the stock market is headed. And unfortunately, it may be headed downhill.

Here are five recent reasons why:

Consumer confidence may have peaked: Consumer confidence recently hit its highest level since the dot-com days, but there are signs that optimism from early 2017 is waning. In its April reading, the Conference Board found Americans grew more pessimistic about current economic conditions and the job market. Sure, sentiment is still elevated compared with before Election Day, but a lack of progress on big economic issues in Washington, should it continue, could mean we are at risk of declining confidence.

Actual spending is meh: Of course, consumer confidence is a “soft” metric anyway. A clearer indicator is actual spending itself, which went nowhere in February. The meager 0.1% gain was the smallest in six months. And data released just a few days ago showed spending stayed depressed in March. So much for that confidence paying off via actual spending in early 2017.

Big-name consumer stocks struggle: Looking beyond broad trends, what really matters to investors are sales and profits — and as first-quarter earnings show, many companies aren’t seeing Americans put their money where their mouth is. Consider Procter & Gamble Co. PG, +0.24% which cited soft spending as a drag on its latest earnings, or struggles at consumer names including Costco Wholesale Corp. COST, +0.88% and AutoZone Inc. AZO, +0.81% Sure, these consumer stocks all have unique pressures outside spending trends, but together, they point to a trend.

Retail sales slump: It’s tempting to write off the troubles of AutoZone as yet another sign that the retail sector is doomed. But the bottom line is retail is a crucial industry — and pain for the sector is pain for the economy at large. The latest Census Bureau data shows that retail and food services sales were down in March after falling in February.

Like it or lump it, retail sales are a very important indicator for America’s economy, both as a proxy for consumers and as a barometer of hiring and wages at major employers like Wal-Mart Stores Inc. WMT, +0.29% which employs some 1.5 million Americans. Those who write off weakness in retail are shortchanging a vital indicator of economic health.

GDP growth Is ugly: When you add all this up, it’s not surprising that the U.S. economy isn’t doing all that grand at the moment. U.S. GDP growth in the first quarter was a meager 0.7% — the slowest rate of growth in three years. And the kicker is that details from the Bureau of Economic Analysis reveal the worst personal spending trends since 2009, during the depths of the financial crisis. Consumer spending grew at an appalling 0.3% annualized rate — down dramatically from 3.5% at the end of 2016.

Of course, there are the regular Goldilocks lines about the weather, which was either too warm or too cold, depending on your angle. And there are also the predictions of a consumer spending rebound in the second quarter thanks to a rising stock market and strong employment trends.

But it’s worth noting that this rally is already long in the tooth, running eight years without a 20% decline or greater in the S&P 500 SPX, -0.27% and a whole lot of optimism was priced into the market last November without a whole lot of tangible results for the economy just yet.

The market might not be ringing alarm bells and sending clear “sell” signals just yet.

But if the state of the American consumer continues to look this bleak, we could very well see the alarm — and a steep decline for stocks — in the near future.

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