There’s soaring inflation and sticker shock, but that’s not suppressing spending by Americans.
According to the latest report from Mastercard SpendingPulse, issued Tuesday morning, U.S. consumers are still spending with gusto despite the nation’s soaring inflation impacting everything from housing costs and gasoline to restaurant tabs and food prices. In February, overall retail sales in the U.S., excluding automotive, increased 8.7 percent from February 2021 and were up 17.3 percent compared to pre-pandemic February 2019, according to Mastercard.
Mastercard reported that sales at stores grew 10 percent in February compared to the same month last year, and grew 8 percent versus the 2019 month, as consumers resumed in-person activity. The stronger selling at stores last month in part reflects workers renewing their wardrobes as they prepared to return to their physical offices after nearly two years of working remotely, and the stormy weather that occurred in February 2021 across large portions of the U.S.
E-commerce sales in February were up 4.4 percent year-over-year and 85.9 percent versus February 2019, according to Mastercard, as the shift to digital remains “a persistent yet slowing trend.”
Wage gains, workers returning to their offices, pent-up savings, mask mandates starting to end, and a desire to go out again and socialize have all fueled spending this year.
In January, when Omicron was raging, U.S. retail sales (excluding auto) increased 7.2 percent year-over-year with online sales growing 10.4 percent compared to January 2021.
“Despite inflation, consumers are putting their record savings to work and expressing themselves through fashion again, much to the benefit of the apparel, department store, luxury and jewelry verticals,” said Steve Sadove, senior adviser for Mastercard and former chairman and chief executive officer of Saks Inc.
In February, inflation hit 7.5 percent in the U.S., the highest it’s been since 1982. Supply chain disruptions, labor shortages and the strong consumer demand have pushed prices higher. The price of a gallon of gas at the pumps averages more than $4 across the country, and prices are rising due to the supply chain disruptions caused by the war in Ukraine.
Mastercard measures in-store and online sales at retailers and food service merchants of all sizes and across all forms of payment. The firm’s findings are based on aggregate sales activity in the Mastercard payments network, coupled with survey-based estimates for certain other payment forms, such as cash and check. Sales activity within the services sector, including travel services such as airlines and lodging, are not included.
Retail sales last month were also helped by widely seen positive furniture and furnishing sales, which spiked in February around the traditional Presidents’ Day weekend, driving growth rates up 10.8 percent year-over-year, and 17.9 percent compared to pre-pandemic 2019 levels for the month.
Restaurants, which for several months now have been busy, saw sales spike 39.4 percent year-over-year, and 24.2 percent from pre-pandemic February 2019. Restaurants continued to outperform other sectors in February with growth rates in the 30 to 40 percent range across most states, according to Mastercard.
The Consumer Confidence Index fell slightly in February, after a decrease in January, according to The Conference Board, though consumer confidence gauges attitudes about the economy rather than being a measure of their actual spending. “Consumer confidence was down slightly for a second consecutive month in February,” Lynn Franco, senior director of economic Indicators at The Conference Board, said in a recent statement. “Concerns about inflation rose again in February, after posting back-to-back declines. Despite this reversal, consumers remain relatively confident about short-term growth prospects. While they do not expect the economy to pick up steam in the near future, they also do not foresee conditions worsening. Nevertheless, confidence and consumer spending will continue to face headwinds from rising prices in the coming months.”
In terms of how retail sales play out in 2020, retailers see a mix of tailwinds and headwinds, and in several cases, low-single-digit gains. Macy’s Inc. has forecasted sales flat to 1 percent ahead. Kohl’s Corp. sees sales increasing 2 to 3 percent. Target Corp. is looking for midsingle-digit revenue growth, and Walmart Inc. expects comparable sales growth above 3 percent in the U.S. this year.
Tailwinds include financially healthy consumers, low unemployment, a return to the offices and social activities, and some improvement in international tourism. Regarding headwinds, the supply chain is still challenged, retailers are lapping government stimulus checks from last year, inflation could deter shoppers, particularly lower- and middle-income consumers, and a prolonged war in Ukraine and the possibility of it spreading to other countries would impact the consumer psyche.