Last week I wrote an article about the retail sector and how it was going to be in the spotlight for a week or so. There was the retail sales report for October that was due out on November 15 and there were a number of big retailers set to release earnings. With the U.S. consumer carrying the economy on its back, I expected solid earnings reports from the sector members. But that hasn’t been the case for the most part.

The retail sales report showed an increase in sales of 0.3% and that was better than the estimated increase of 0.2%. That gave the sector a small boost as did Walmart’s earnings report on November 14. But the boost was small and short-lived.

Walmart beat its earnings and revenue estimates and the stock jumped over 3.5% initially. Unfortunately, the gains didn’t hold and the stock dropped back down by the end of the day and it fell again the next day.

The really bad results would come on Tuesday when Home Depot, Kohl’s, and TJX reported earnings. Home Depot missed its revenue estimate and it lowered its sales forecast stating that on-line sales and brick-and-mortar sales weren’t meeting forecasts. The stock would end up dropping over 5% on the day.

Home Depot’s loss was nothing compared to what happened to Kohl’s. The department store operator missed on earnings and revenue estimates, and lowered its full-year forecast. The stock fell 19.6% on the day. As I pointed out in my article last week, Kohl’s has been struggling more than the retail sector as a whole.

TJX was definitely the highlight of Tuesday’s retail earnings. The company beat its EPS and revenue estimates and the stock gained 1.8% on the day. Unfortunately, the momentum didn’t carry over into Wednesday and the stock was down over 2% at the time of this writing.

Lowe’s and Target both issued positive surprises on Wednesday morning and both stocks saw big jumps. Lowe’s was up over 5% and Target was up over 12% after their earnings reports. Unfortunately, even with Lowe’s and Target moving up so sharply, the SPDR S&P Retail ETF (NYSE: XRT) was still trading down on Wednesday.

We are getting ready to enter the critical holiday shopping period and investors have to wonder if the shortcomings of Home Depot and Kohl’s are company specific or are they a sign of a bigger problem in the sector as a whole.

With the consumer being the biggest catalyst for economic growth over the last few quarters, it would be a bad sign for the economy as a whole if consumers started to tighten up on their spending. It would certainly cause the economy to slow down even more than it already has and could potentially cause the economy to actually contract rather than the small expansion we have been seeing.

One piece of news that came out this week that hasn’t gotten much attention was the Atlanta Fed’s GDPNow forecast. On November 19 the updated model was predicting GDP growth for the fourth quarter of only 0.4%. That is a big drop from the growth rate of 1.9% that we saw in the third quarter.

If consumers slow their spending during the crucial holiday spending period, the small growth rate could be adjusted even lower and could potentially dip into negative territory. Obviously Home Depot and Kohl’s are more specialized than Target and Walmart, but if the earnings shortcomings of the former two are a sign of a more widespread problem in the retail sector, it could mean a bigger problem is in store for the overall economy.

We won’t have to wait until the next round of earnings reports in February to find out if there is a problem. When the unofficial holiday season kicks off on Black Friday, we will get regular updates on how the various retailers are doing and how the sector as a whole is doing. I would suggest paying close attention to the results as it could be an indication of what’s to come.