Shedding concerns, consumers return to retailers
For months, consumers have been facing a number of obstacles: rising inflation, Federal Reserve interest rate hikes and America’s escalating foreign trade disputes. But despite higher retail prices, rising borrowing costs and uncertainties, the American consumer is proving to be quite resilient.
Retail Sales consists of receipts from the sale of goods and products to consumers. It includes both traditional retail stores and on-line retailers across 13 categories. Data incorporates all in-store, catalog and internet sales. Retail sales data represents a large part of overall consumer spending. Consumer spending accounts for more than two-thirds of all U.S. economic growth and activity.
Fueled by a strengthening economy, robust labor market, lower taxes and high confidence, consumer spending is surging higher. In May, Retail Sales increased by 0.8 percent - up 5.9 percent from the prior year. This was the largest monthly and annual increase this year. It was the third consecutive month of solid Retail Sales data after the dismal results of January (-0.1 percent) and February (0.1 percent).
The retail industry saw growth in 10 of 13 categories, led by strength in building materials and supplies, gas stations and clothing. The two categories that declined were furniture and home furnishings and sporting goods, hobby, books and music. Sales for food and beverage stores remained unchanged from the prior month.
The retail category that has achieved the largest annual growth over the past three months is gas stations, at 13.2 percent. However, much of this increase can be attributed to rising gas prices. The national average for a gallon of regular gas is now the highest since November 2014. Rounding out the Top 5 are furniture and home furnishings (4.9 percent), automobiles and auto parts (4.7 percent), clothing (4.4 percent) and food and beverage stores (4.3 percent). This ranking excludes miscellaneous stores and on-line retailers.
In the last three months of 2017, the economy roared back to life – averaging an impressive 3 percent growth. But in the first quarter of this year, the economy grew at an annualized rate of just 2.2 percent, slightly above the lackluster 8-year average of 2.1 percent. The ongoing resurgence in Retail Sales affirms to many the earlier pullback in consumer spending was a temporary and seasonal blip. The financial markets are expecting a rebound in the second quarter, but the question is – by how much?
Last week the Fed raised its forecasts on the strength of the economy and labor market. The projected economic growth rate this year was raised from 2.7 percent to 2.8 percent. The Fed also expects the unemployment rate to further decline this year from the current 3.8 percent to 3.7 percent. Combined with a renewed strength in consumer spending, some projections for economic growth in the second quarter are exceeding 4 percent.
Considering the existing slate of obstacles, 4 percent growth may be a bit optimistic. Yet, it does highlight the ongoing and sizable shift from the moderate economic growth of the past near-decade, and more importantly, the resilience of the American consumer.
Mark M. Grywacheski, Investment Advisor
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Quad Cities Investment Group, LLC is a registered investment advisor with the U.S. Securities Exchange Commission.
