Traffic makes it's way past the Macy's flagship store, in New York. The company reported its second straight quarter of higher sales at existing stores after a three-year funk. Its shares surged nearly 9 percent Wednesday, and the stocks of other department store chains rose as wellEarns Macys, New York, USA - 16 May 2018

The U.S. economy has been busy setting a series of records.

Unemployment is at a 49-year low, consumers are at their most confident in 18 years and even wage growth, which had been lagging the rest of the economy, broke through the 3 percent barrier for the first time since the recession.

All of this helped boost the economy with growth of 3.5 percent in the third quarter as households felt better off and it translated into a consumer spending boom.

Now fashion is about to see which retailers benefited. Macy’s Inc. on Wednesday kicks off two weeks of earnings reports from the big players and so far, it’s looking to be a mixed bag.

Of the 12 major names set to report earnings this week and next, four (Walmart Inc., Canada Goose, The TJX Cos. and Ross Stores Inc.) are expected to see their stock prices outperform, according to S&P Capital IQ.

Having plowed a lot of cash into enhancing its digital offering and in-store experience, Walmart has been riding high on the consumer spending wave, while discount stores like The TJX Cos. have done well because shoppers, despite having more money in their pockets, still enjoy bargain-hunting.

The off-price sector is expected to be widely shielded from higher tariffs from the U.S.-China trade war as these companies directly import a very small percentage of product they sell and are in the “driver’s seat” when it comes to negotiations with their suppliers, according to Ike Boruchow, a senior analyst at Wells Fargo.

The eight other companies due to report earnings all have “hold”on their stocks, with J.C. Penney Co. Inc. at the bottom of the pile. Once a powerhouse retailer, the firm is treading water as it struggles with a $4 billion debt and a mounting pile of unsold stock.

In the middle of the pack were Macy’s Inc., Nordstrom Inc., Target Corp., Kohl’s Corp. and Urban Outfitters Inc. Those stocks have been strong performers so far this year, but they might not have done well enough to steady nervous investors.

The Dow Jones Industrial Average plunged 602.12 points, or 2.3 percent, to 25,387.18. While investors were said to be jittery over the technology sector and economic and political issues in Italy and the U.K., the sentiment also impacted the retail sector. Companies who ended the day in the red included Farfetch, down 9.2 percent at $21.12; Canada Goose, 4.8 percent at $57.09; New York & Co., 9.1 percent at $3.82, and J.C. Penney, 5.2 percent at $1.28.

Faring slightly better, but still declining were shares of Macy’s, down 1.9 percent to $37.05; Nordstrom, 1.8 percent to $64.30; Walmart Inc., 1.6 percent to $103.87; Kohl’s, 1.5 percent to $80.75, and Urban Outfitters, 1.4 percent to $39.87.

However, market doldrums aside, for those retailers that have their ducks in a row, hopes are high for the holiday, which makes up the lion’s share of profits.

The National Retail Federation is forecasting that holiday sales will rise between 4.3 and 4.8 percent compared to the same period a year earlier for a total of $717.45 billion to $720.89 billion “thanks to a healthy economy and strong consumer confidence.” This is an improvement on the annual average of 3.9 percent over the past five years.

“Maybe not for everybody, but for many many folks, a rising tide will lift almost most boats,” Craig Johnson, head of retail consultancy Custom Growth Partners, said. “You’re not going to get Sears and a couple of the other ones off the bottom. J.C. Penney will also be a tough lift.”

That’s not to say, though, that things will be smooth sailing next year as there are a number of headwinds to consumer spending on the horizon.

This includes the Federal Reserve’s policy of steadily increasing interest rates from their crisis-induced record low levels. It’s widely expected to push them up for the fourth time this year in December despite unprecedented criticism from President Trump.

While this so far hasn’t impacted consumer spending, the concern for retailers is that maintaining credit-card balances, student loans and many mortgages will become more expensive as rates continue to edge upward and that could lead consumers to start to curb discretionary spending.

Then there are tariffs as the trade war between the U.S. and China shows no sign of abating. To date, it hasn’t weighed on consumers so much, but that is expected to change soon as tariffs on a raft of consumer goods will rise from 10 percent to 25 percent at the year end.

Major retailers have already warned they will be left with little choice but to raise prices and the situation could get even worse as it has been reported that the administration is tentatively preparing more tariffs if planned talks between President Trump and President Xi don’t go well next month.

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