So far, 2017 has been something of a disaster for retailers, which are shuttering stores, bemoaning lost traffic and desperately plowing what money they can muster into growth areas, hoping they can make e-commerce work in the age of Amazon.
But the March update on personal income and outlays from the Commerce Department showed what economists said was a more nuanced and potentially significantly brighter picture overall.
“Wages and spending ended the first quarter on a low note, while real disposable income and real spending ended the quarter on a very strong footing,” said Chris Christopher Jr., director of consumer economics at IHS Markit, in an analysis. “Real consumer spending growth was a lackluster 0.3 percent in the first quarter after posting a 3.5 percent gain in the fourth quarter.
Christopher noted that real disposable income was up what he described as “a whopping 0.5 percent” and that the saving rate stood at 5.9 percent, its highest level since August.
“Consumers are likely to come out swinging in the second quarter,” he said. “We expect real consumer spending growth to be well above 3 percent in the second quarter since the first-quarter pullback was temporary. The fundamentals on robust consumer spending are in place, such as elevated levels of consumer confidence, rising real disposable income, and increasing household net worth.”
He attributed weak spending at the start of the year to “unseasonably warmer weather, a spike in consumer price inflation, delayed income tax refunds, and payback for a strong fourth quarter on the holiday sales and auto sales fronts.”
Gas prices in particular have been sapping the consumer of some of their spending power, having risen 19.9 percent over the past year as apparel prices inched up just 0.6 percent, according to the latest government figures. In February and March, though, gas prices started to sink back down.
But retailers might see little relief.
“Only certain retail segments are suffering right now,” said Scott Hoyt, senior director of consumer economics at Moody’s Analytics. “In particular, online sales are booming and that is stealing a lot of share from other segments, in particular segments that sell apparel.”
Hoyt said retailers have very little pricing power right now with tough competition and the stronger dollar making imports cheaper. (It has become harder for stores to charge a premium given how promotional the environment has become, with consumers expecting prices to always come down and supply chains making that possible.)
Although retailers have been fretting over an absentee shopper — literally, wondering where all their foot traffic has gone — Hoyt said shoppers have actually been “driving the economy,” just not by going to their local stores.
“Consumer spending growth has been outpacing GDP [gross domestic product] growth on a year over year basis…for over two years now,” he said. “Consumers have been leading the economy. Consumers should continue to lead the economy as long as we get the uptick of wage growth that we think tight labor markets should produce.”
For retail, the challenge is figuring out what people want and getting it to them.
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