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November 7, 2024
Are Strong Retail Sales Hinting at a Recovering US Economy?
The American economy has certainly been put to the test over the past years, enduring the challenges brought on by the COVID-19 pandemic and the resulting inflation, business closures, and uncertainty in terms of the broader job market.
But are things actually improving for the average consumer as 2024 draws to a close — and the biggest shopping season of the year kicks off? Certain indicators suggest as much.
Consumers Buying Despite Continuing Inflation
According to AP News, U.S. consumers aren’t being deterred by higher prices, even as inflation cooled to a 2.4% year-over-year (YoY) rate in September 2024 from its recent peak of 9.1% in June 2022. A relatively low unemployment rate, healthy stock and real estate markets, and pay gains could also be influencing continued consumer spending, per the news agency.
“Retail sales came in well above expectations and continue to defy the ‘weak economy’ thesis,” said Quincy Krosby, chief global strategist for LPL Financial, a wealth management firm, as reported by AP.
United States Census Bureau data appears to substantiate this line of thought. According to its recent figures, advance estimates for retail trade sales for September 2024 were up 0.3% from August and up 1.4% from last September. Additionally, nonstore retailers showed 7.1% growth in terms of YoY sales, while food services and drinking places enjoyed a 3.7% increase over the same time frame.
However, the outlook isn’t equally bright for all demographics. As PBS News outlined, research by the Federal Reserve suggests that mostly upper- and middle-income Americans are behind higher retail spending by U.S. consumers. Low-income households, however, are struggling to keep pace with skyrocketing prices and interest rates, being much more likely to curtail their spending.
Strong Sales, Strong Economy?
Though sales figures remain strong, does this necessarily coincide with cheery news for the broader economy?
Quoted by Yahoo! Finance, Chris Williamson, chief business economist at S&P Global Market Intelligence, suggested that his company’s collected data showed an economy exhibiting growth. “October saw business activity continue to grow at an encouragingly solid pace, sustaining the economic upturn that has been recorded in the year to date into the fourth quarter,” Williamson said. “The October flash PMI is consistent with GDP growing at an annualized rate of around 2.5%.”
The mechanism behind such strong sales figures is “competitive pricing,” Williamson added, which pushed the selling price inflation for goods and services to the lowest level since May 2020.
A recent report from The Wall Street Journal also painted a sunny picture concerning the immediate future of the economy, pointing out that the United States was outperforming most of the world’s competing advanced economies, primarily due to investment having a positive influence in terms of higher productivity and wages. The WSJ added that the International Monetary Fund (IMF) had upgraded the outlook for both U.S. and global growth, “though more for the former,” via its latest scorecard.
Q4: Will the Holiday Shopping Season Hold Up?
With the massive holiday shopping season beginning to shift into full gear, finishing with a strong fourth quarter may seem likely, though not entirely certain.
AP News cited National Retail Federation estimates of an increased holiday shopping spend of between 2.5% to 3.5% YoY. Though encouraging, this is a dip in the increase seen between 2022 and 2023, where a 3.9% hike in November-December spending was observed.
One thing is for sure: Retailers are ramping up their holiday marketing efforts early in an attempt to get customers thinking about buying sooner, rather than later.
“To try to pull in shoppers, many retailers, from the holiday décor online retailer Balsam Hill to the crafts retailer Michaels, are displaying holiday merchandise and marketing earlier than they did a year ago,” AP reported.
Consumers also seem to be on board with the changing realities of an increasingly early retail holiday sales season: A full 48% of those surveyed by Bankrate in August said they would begin their holiday shopping in August, September, or October of this year.
Discussion Questions
What can retailers do differently this year than in years previous to drive more consumer interest, or traffic, this holiday season?
What can state and federal governments do to allow lower-income households to participate further in consumer spending, particularly given the economic challenges facing these households?
Is increased consumer spending actually a true indicator of economic health, particularly given the reality of U.S. consumer credit card debt having hit a record of $1.14 trillion as of August?
Poll
Loading …BrainTrust
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
Oliver Guy
Global Industry Architect, Microsoft Retail
Shep Hyken
Chief Amazement Officer, Shepard Presentations, LLC
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In this article, the numbers quoted from the Census Bureau are for seasonally adjusted numbers. These are a complete nonsense as they do not reflect actual sales. This metric really should not be used as it is unreliable.
The latest set of retail sales figures (September) were actually not strong. They were flat on a year-over-year basis. Core retail sales – which exclude gas, automotive and foodservice – grew by a more respectable 2.4%, but this is still below average.
The one small mitigating factor is that across most of the month of September, consumers were very aware of the deal days coming in October from Amazon, Walmart, Target and others. From our data this meant some purchases, especially for things like electronics and small appliances, were postponed and will likely materialize in the October numbers.
So, none of this points to a great economy. Nor does it suggest a disastrous economy. It suggests a very middling economy where consumer moods are unstable and spending patterns changeable.
The economy “recovered” years ago – at least by the conventional metrics, if not by streetside interviews with random people – so I’m unclear on how to answer what might seem to be a loaded question.
A few other thoughts
-consumers aren’t being deterred by higher prices, even as inflation cooled to a 2.4%: wouldn’t the time to have been deterred when inflation was heating up?
-Are the figures here adjusted for…well, inflation? Ambiguous data presentation has always been an issue, but even more so when a rise of X%, and a price rise of X.3% might indicate either a modest (real) increase, or an actual decline.
-What can state and federal governments do to allow lower-income households to participate further in consumer spending? Maybe just stay out of it.
Wall Street analysts believe consumer confidence has risen quickly and sharply since election day, and now predictions are being made for a stronger holiday season than anticipated six months ago. Whether it’s political or not, facts are facts. Did you see the Wall Street numbers the day after the election?
Businesses of all sizes also have skyrocketing confidence because they will now be paying much lower taxes, rather than much higher taxes, and there will be fewer regulations instead of a much greater amount of taxes beginning in January.
Inflation, interest rates, are also expected to improve. Consumers, retailers, distributors, wholesalers, etc. all suddenly expect new trends that will help to re-evaluate the holiday season, and for that reason alone, this will be a better holiday season than each of the past three years. Businesses of all sizes also have skyrocketing confidence because they will now be paying much lower taxes, rather than much higher taxes, and there will be fewer regulations instead of a much greater amount of taxes beginning in January.
Also expected to improve are inflation and interest rates. Suddenly, consumers, retailers, distributors, wholesalers, etc., are expecting new trends during the holiday season, and just for that reason, this season will be better than the previous three.
Certainty at the end of a presidential election is always a positive, no matter who wins, and bodes well for a strong holiday. There may be some clouds on the horizon — the impact of promised tariffs, for example. And GOP members of Congress are already reportedly questioning the scope of Trump’s promised tax cuts (such as no taxes on Social Security) vs. the already huge scale of our deficits.
I (along with Bain, Deloitte, NRF etc.) believe you’re right about a strong holiday season; however, there are many factors that temper that likelihood that were not called out in the article. For example, retailers’ engagement efforts were hampered by an election season that consumed available ad inventory. Combine that with the shortest holiday season in 3 years and we’re looking at an uber abbreviated opportunity to message value. If that wasn’t enough, think about shopping patterns that suggest 2/3 consumers will hold off making big purchases until Cyber Monday, further curtailing retailers’ ability to drive sales. Oh, and don’t forget the 23% of shoppers that report spending less this season if their candidate loses. Again, I’m with your forecast but … not by much.
The economy in the US as a whole has been recovering and growing faster since the pandemic than the rest of the world. Retailers are caught in the middle of trying to control there Margins while expanding hours and product lines that align with a broader set of Middle and lower income demographics life style. From the Government point of view adding funding, protection and other incentives to enable retailers to operate effectively in lower income areas is probably the easiest change to implement.
I believe that consumers were holding on to their money until they the unknown about the election was resolved. i believe people will spend more now for the holiday season. While this won’t be a super holiday sales period, I think it will be better than last holday season.
This will be interesting to watch. Donald Trump is promising tax cuts – but also tariffs.
How these will interplay will be fascinating. Tax cuts can often put more money in the pockets of consumers – which could help retailers and subsequently manufacturers further up the supply chain driving demand and solidifying recovery. However tariffs can have the effect of increasing the price of goods. The manner in which tariffs will interact with tax cuts is difficult to predict.
Anecdotally, there are stories of manufacturers forward buying raw materials that could be impacted by tariffs – if this is the case, we may see recovery and growth in the coming 6-12 months but then uncertainty beyond that as retailers and manufacturers adapt – which clearly they will.
It is clear that statistics, polls, and trends are not all that reliable. Human nature is somewhat fickle. However, I do believe that indicators are pointing in the right direction for a strong finish to 2024 and economic growth into 2025.
There will be a honeymoon period for investors, for manufacturers, and shoppers which may boost near-term retail spending. Despite the daunting unknowns (taxes & tariffs; wars & global unrest; natural disasters; among others) retailers should open up their playbook and invest in merchandising, marketing, ecommerce, and retail media. Preparing one’s field for future harvest is always the right path.
Interest rates just dropped, and the market has moved significantly higher this week (after the election). However, the cost of food and gas is still high, cramping the spending capability of many Americans. Increased consumer spending may be happening because of higher costs. Higher credit card debt may not be because of consumers’ confidence to spend more but because of higher prices in the grocery store, at the pump, etc. However, emotion is tied to the holidays, and many want to give generously (in the form of gifts and celebrations), even if it hurts a little.
Yes, increased consumer spending reflects a stronger economy. This is an obvious direct relationship, since you cannot find increased consumer spending that reflects a weak economy. Our economy is built on this and has performed over the years to drive so many factors forward everytime we enjoy strong consumer spending.
Increased spending is not necessarily a indicator of a recovering economy, however it is ABSOLUTELY an indication of consumer optimism and confidence, which ultimately leads to recovery.
A good thing all around.