Things are looking up for shoppers and retailers this holiday shopping season.
The economy is creating jobs at a pace that hasn't been seen since the dot-com bubble was still inflating. Crude oil prices have plunged, pushing gasoline prices to levels not seen since 2010. Stocks are at record highs and home prices continue to slowly drift higher, bolstering household wealth. Fears over external threats like Ebola and ISIS are easing.
So it's no wonder that retail stocks, as represented by the S&P Retail Index (XRT), recently punched out of a trading range going back to the start of the 2013 shopping season (which ended in disappointment on the polar vortex freeze out) to push to new record highs.
Will this year's optimism ultimately be justified?
Wall Street certainly thinks so. The team at Capital Economics believes this could be the best holiday shopping season in nine years. But they warn against putting too much focus on Black Friday itself, as sales on this day -- which has been the busiest shopping day of the year since 2005 -- is becoming less and less accurate as an indicator of overall holiday sales. The rise of online shopping, and the increasing prevalence of Thanksgiving Day sales, are all playing a role, to be sure.
Adding to the difficulty is the fact that Cyber Monday falls in December this year, which could pull down November's retail sales data.
Setting all that aside, what should we expect? Gallup's Christmas Spending Survey shows that consumers are looking to spend about 10 percent more on gifts this year than last year. Historically, this has translated into retail sales growth of around six percent.
Certainly, people have the cash to spend. Payrolls have expanded by an average of almost 230,000 jobs per month this year, totaling nearly 2.7 million. The unemployment rate, at 5.8 percent, is at its lowest level in more than six years. The drop in gas prices will, according to estimates from PNC economists, put nearly $39 billion worth of extra spending money into American wallets compared to 2013.
Other forecasts are less cheery, finding that many consumers remain cautious. Home prices are still down 11 percent from their 2007 peaks, credit remains tight and wage growth is disappointing. But as long as the weather holds -- a big "if" given the epic winter storm last week in upstate New York -- the confidence being baked into retail stock appears justified.