Shares of consumer goods stocks jumped on Tuesday after some positive data was released. The Census Bureau said that retail sales rose 0.7% month over month in September on the back of higher spending at restaurants and bars, and on vehicles. Analysts were only expecting a 0.3% increase in sales.
In response to the report, consumer goods and entertainment stocks were on the rise. AMC Networks (AMCX 1.81%) jumped by as much as 5.3%, Mattel (MAT 0.33%) was up by as much as 4.9%, and B&G Food (BGS 0.56%) popped by as much as 4.6%.
Higher retail sales drive consumer goods stocks
It's hard not to see this latest data as bullish for companies that rely on consumer spending. Retail and food service sales were up 0.7% sequentially to $704.9 billion, and for the third quarter, total sales were up 3.1%.
Retail sales were up 0.7% sequentially, and sales at food service and drinking establishments (bars) were up by 9.2% from a year ago. That explains the share price jump of B&G Food, which sells into these businesses. It doesn't seem that rising food costs have hurt restaurants and bars much in 2023.
The retail numbers were also positive for Mattel heading into the all-important holiday season. And for AMC Networks, a strong retail environment could help support ad spending and holiday sales for streaming services and other content.
One of the biggest macroeconomic fears among market participants was that consumers would pull back on spending. That doesn't appear to be happening.
Inflation may be under control
On top of the positive spending news, Richmond Fed President Tom Barking said Tuesday morning that demand may be weakening enough to bring inflation down to the target level of 2%.
This would mean the Federal Reserve wouldn't need to further increase the benchmark federal funds rate in its ongoing effort to tame inflation. There's significant debate about how high inflation actually is given the rising cost of large items like cars and homes, but boosting interest rates higher could hurt the broader economy. So, policymakers must keep attempting to perform their high-stakes balancing act: tighten up monetary policy enough to get inflation in check, but not so much that they tip the economy into a potentially avoidable recession.
Good news, for now
Strong consumer spending is a positive for consumer goods and entertainment companies, but it's not clear how long this can last. The chart of U.S. credit card debt below indicates that consumers are spending more than they're making right now.
U.S. Credit Card Debt data by YCharts.
With higher interest rates, the cost of this debt continues to go up, and will eventually have to be repaid.
For now, the data is pointing in the right direction, and nothing appears to be impacting consumer spending to the downside. That may change as housing costs eat up large shares of household budgets and auto prices and loan terms get more costly, but the September report has put off those fears for now.
The next step for these companies will be to report third-quarter earnings, at which point investors will learn how their management teams see the next few quarters playing out. Maybe we are in a new age of spending growth as inflation eases back down to economists' preferred levels.
