Recently, the U.S. Department of Commerce announced that core retail sales in February (not including food, auto, building materials and fuel sales) rose 0.1% following a January rise of 0.8%. The numbers, of course, show us that Americans participated in the act of “retail therapy” only slightly more in February than they did in January – but what is the real story? Let’s take a closer look.
According to the Conference Board, the Consumer Confidence Index (for February 2017) surged to its best level since July 2001. As well, according to Deutsche Bank, the spending capacity of the average American consumer right now is in the "best financial shape in decades" due to the lowest debt-to-disposable income ratio in 15 years, higher wealth levels and low debt-service burdens thanks to low interest rates.
With all the positive news in consumer confidence, shouldn’t spending be through the roof?
Not according to J.P. Morgan Funds: David Kelly, chief global strategist for the company recently said that consumer spending appears to be climbing at a 1.4% annualized rate in the current quarter — the lowest pace in nearly four years. What’s more, Yardeni Research recently reported a significant slowing in the growth of real U.S. consumer spending on goods since mid-2016.
Many industry experts say this could be attributed to the delays in some consumers’ tax refunds, but overall, most agree it could be a sign of consumer caution, even in the midst of rising optimism. According to GlobalData Retail managing director Neil Saunders, the downtick in spending is largely a temporary blip and not the result of a downswing in consumer sentiment. In a recent Retail Dive article, Saunders states “considering employment stability, there is nothing to suggest that the consumer economy should be losing this much momentum.”
Is it possible that, as the Associated Press (AP) recently reported, that (retail sales) growth has just not caught up with the recent burst of optimism that followed Donald Trump’s election? The AP reports that the U.S. economy expanded at a modest 1.9% pace in the final three months of last year, and that most economists expect it will grow at roughly a 2% pace in the January-March quarter.
Time will only tell how consumer confidence will change in the coming months. For retailers, it will be critical to continue putting their best foot forward by creating engaging in-store experiences that result in increased sales and profits. The numbers tell us that shoppers are ready, are you?