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The forecast: US retail sales will grow 2.9% year-over-year (YoY) this year to $7.303 billion, per our US Total Retail Sales forecast. We expect growth to accelerate to 3.5% next year.
That modest growth reflects a complicated post-pandemic environment in which the labor market remains strong, but consumer spending patterns have shifted from goods to services and inflation continues to weigh on consumers.
The metrics:It can be hard to make sense out of the mixed signals coming from US government agencies and other sources.
Consumers have money to spend. The tight labor market pushed up personal income 0.4% month-over-month (MoM), according to a US Commerce Department report, while another recent report noted that workers’ buying power increased for the first time in two years in May.
They’re feeling increasingly optimistic. US consumer confidence reached its highest point in 18 months in June, according to the Confidence Board, and the University of Michigan’s measure found a consensus improvement across all demographic groups.
But they’re losing steam—and focused on saving. Consumer spending in May was flat when adjusted for inflation and growth has essentially stalled since rising 1.3% MoM in January, per the Commerce Department. Consumers also continue to rebalance what they’re buying as spending on goods fell 0.4%, while services rose 0.2%. Meanwhile, the personal saving rate ticked up to 4.6% in May.
There are speed bumps ahead. While inflation is waning, it remains elevated, which has caused nearly 80% of consumers to cut spending on nonessential goods like home decor and clothing over the past six months, according to a CNBC and Morning Consult survey. And consumers’ price sensitivities are poised to grow more pronounced as the student loan payment pause expires at the end of August.
On the ground: A wide array of retailers, including Home Depot, Target, and Macy’s, recently noted that consumers have grown increasingly price sensitive this year.
Casey’s General Stores CEO Darrenn Rebelez said the gas station and convenience store chain has seen low-income consumers opt for less expensive prepackaged foods and private label goods rather than hot breakfast items or name-brand products. Some are also stretching their dollars when they fill their tank by choosing cheaper ethanol blends.
And 43% of merchants are ordering less inventory than last year as they prepare for a challenging holiday season.
The big takeaway: Retailers can and should prepare for a period of slower, incremental growth that’s roughly in line with historical norms.