Risk: April retail sales reinforce slowdown

The bombshell this week from department store giant Macy’s about consumers not opening their wallets as much as expected and Kohl’s and luxury retailer Nordstrom both falling short of quarterly profit estimates Thursday could be foreshadowing a weaker-than-expected reading on April retail sales set for release Friday.

So says Stephen Kalayjian, chief market strategist of investment research at KnowVera.

Wall Street sees April retail sales rising 0.8%, rebounding from a drop of 0.3% in March, according to Bespoke Investment Group. But if Macy’s grim profit and sales forecast is any indication of consumers unwillingness to spend, Kalayjian thinks last month’s retail sales “will come in worse than expected.”

Consumers spending less is not a good sign for the U.S. economy, corporate earnings or the stock market, Kalayjian warns.

“What is happening is you are starting to see the consumer potentially pull back,” he says. And that’s a negative as “the consumer was one of the bright hopes of the economy, along with job growth.”

“If you start to see a pullback in jobs and consumer spending,” he adds, “the U.S. economy, which is hanging by a thread, will be in dire straits.”

Nordstrom, which missed quaterly forecasts and lowered its profit guidance for the year, is paying the price, as shares of its stock is down 18% in pre-market trading before Friday's opening bell.

The recent weakness in consumer spending will make it that much tougher for the Federal Reserve to even “think about raising interest rates,” Kalayjian says.

The Fed, of course, has opted to hold short-term rates steady so far in 2016 after hiking rates in December for the first time in nearly a decade.