By Joe Higgins, Quest 4 Quality
- Furniture store sales are up 45.3 percent this year.
- Consumers are sitting on $2.3 trillion in savings.
- Higher prices could trigger inflation.
There are two ways to look at the April retail sales numbers from the U.S. Census Bureau.
Total sales ended up flat in April vs. March, but if you look only at year-to-date numbers, sales were up 51.2 percent. And almost any year-ago comparison to last month looks extraordinary, as April 2020 was when everything fell apart. America lost 20.5 million jobs that month and our prospects looked dim. Today, one year later, we are in a period of recovery.
The good news is that the March numbers were revised up a full percentage point from the initial 9.7 percent, which is obviously the result of the massive stimulus relief received by many American families as part of the American Rescue Plan. The fact that we were essentially flat in April does not indicate a longer-term trend.
So, people are out shopping, beginning to travel, dining at restaurants and possibly ending the evening at a local bar. Let’s put this in perspective: Consumer spending represents about 73 percent of gross domestic product (GDP) and corporate America’s response to this spending is another 8 percent in capital improvements. This means that what you and I spend every day is 81 percent of GDP. Even if the stimulus checks begin to dry up, as long as consumers are out shopping, the economy will be just fine.
In addition to spending there is a strong residual effect from the high levels of personal savings being held today that also impacts commerce. Over the past year the saving rate has skyrocketed, and now Americans have cash to pay it forward for months to come. It is estimated that families now have upwards of $2.3 trillion in savings accounts that will be used to propel spending through year’s end.
Related: Retail Sales About to Soar
In our businesses, while furniture, appliance and electronics stores were off slightly in April, the four-month gain in volume so far this year is staggering. Furniture stores are up 45.3 percent year-to-date and appliance and electronic stores are up 25.5 percent.
Given the lack of product in 2021 the volume increase is remarkable.
The one concern I have, as I mentioned in my May 10 column, is about the pace of our job recovery. The fact that we added a minuscule 266,000 jobs when we had expectations of nearly 1 million is much more worrisome than flat April sales. I am comfortable with how consumer spending has recovered but we still have 8.5 million Americans out of work. It is possible that this level of unemployment will impact the nascent surge in retail sales and spending we have seen since the beginning of 2021.
On the other hand, the number of Americans who filed for unemployment last week hit a 12-month low of 445,000, which was the best showing since the start of the pandemic. Economists’ consensus was for 452,000 first-time claims, and we managed to best the previous total of 478,000. These declining numbers are a clear indication that employment is expanding consistently and that there are fewer layoffs, and it should help dampen some of the concern about April’s dismal jobs report.
Consumer confidence is expected to fall in April after a record gain in March. This is partly due to the 4.2 percent rise in the Consumer Price Index (CPI), which has a deleterious impact on consumption. During the confidence surveys in March consumers mentioned the impact of rising prices across a broad section of goods and services. An increase of this magnitude in the CPI reduces net disposable income as the price of food, gasoline, homes, automobiles, furniture and appliances all rise at an alarming rate. Nonetheless, as I mentioned above, I believe that spending will continue to increase, even in the face of higher prices, due to the trillions now sitting in personal savings.
Inflation, in its simplest terms, is too much money chasing too few goods. What we are experiencing as a result of the pandemic is a heightened demand by consumers for a range of products that are now in short supply due to a dysfunctional supply chain. Sustained levels of inflation are caused when consumers begin to buy out of fear that prices will be higher next week or next month. Panic buying is one of the hallmarks of inflation and if this attitude takes hold within our economy, then we will see a persistent and sustained level of inflation that even the Federal Reserve will have a hard time controlling.
The Bottom Line
The pandemic’s impact on our economy is slowly loosening it grip to a point where many states are planning to reopen. COVID cases and related hospitalizations and deaths are reaching all-time lows in 37 states. As of this writing fully half of all adults in America have been fully vaccinated. We are not done with the virus yet but it does appear that our economy and our lives will be getting back to normal very soon. That is the best news I can deliver this week.
Joe Higgins is a 42-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant, public speaker, AVB keynoter and YourSource News contributor. Visit his website, Quest 4 Quality with Joe, at www.q4qwithjoe.com.