By Joe Higgins, Quest 4 Quality
- Retail sales at appliance and electronics stores were up 37 percent in June over last year and furniture was up 17 percent;
- Jobless claims fell by 26,000 to 360,000, indicating fewer layoffs in June;
- Inflation is rising, but vendor market share concerns will help curb pricing;
- COVID-19 cases surge as the Delta variant gains strength.
Total retail sales in June increased by 0.6 percent from May, in a month when most economists were expecting a drop of 0.4 percent. It was apparent that Americans were back out in the economy, spending money and enjoying the start of summer.
This is good news for BrandSource dealers, many of whom are benefiting from increased traffic and higher prices due to the backlog of goods. Indeed, June dollar volume at electronics and appliance stores increased 3.3 percent over May and 37.3 percent over the year-ago period.
In contrast, June sales at furniture and home furnishings stores slipped 3.6 percent from May, although most economists believe this is just a monthly aberration. Compared to June 2020, however, furniture and home furnishings retailers were up 17.1 percent in dollar volume.
That said, supply chains are still wobbly, delays are expected, and shipments rarely show up on time.
What’s more, consumers began to shift their buying patterns from goods to services last month. The change was inevitable and anticipated as consumers were no longer tied to their homes by the pandemic. Reflecting that shift in buying patterns were declines at stores that sell books, sporting goods, musical instruments, building materials and furniture. Also, sales of cars and trucks fell 2 percent in June, although much of that was from the global shortage of semiconductors. This is clearly a trend to watch.
The other interesting pattern that is emerging is the shift in spending to leisure and hospitality. It is important to note that the U.S. Census Bureau’s retail sales report is made up entirely of goods with one exception: bars and restaurants, which are the only services included in the monthly releases. So, with that in mind, Americans increased spending in bars and restaurants by over 40 percent compared to last year. Air travel, hotel stays, and rental cars are also up double digits. This trend will shift cash away from home improvement and on to travel and entertainment.
Regardless of where or how shoppers spend their cash, economists are very optimistic about a continuation of consumer spending in the second half of 2021. That’s because gross domestic product (GDP) grew 6.4 percent in the first quarter and the current prediction for Q2 GDP growth from the Atlanta Fed is somewhere between 7.6 percent and 8.9 percent.
In addition, Americans have accumulated over $2.6 trillion in personal savings accounts; home equity is at an all-time high; and the availability of credit is significant. Also, many families will receive income from the Child Tax Credit program, which will encourage further spending.
Last week’s jobless claims dropped by 26,000 to less than 360,000, which matched the consensus estimates. That brings the total number of Americans receiving benefits to less than half of what it was in June 2020. This number is encouraging because it means that fewer businesses are laying off workers.
Continuing claims for unemployment also dropped significantly, by 128,000 to 3.3 million in June. In addition, Americans who were receiving benefits from all U.S. government programs fell by 450,000 to just over 14 million people. While that is still high, it is well under the 30 million-plus who were on the rolls in 2020.
We saw inflationary pressures rise again in June with no end in sight. Readers of this column know that my position on inflation is in line with that of Fed chairman Jerome Powell. I believe, as Powell said, that the current inflationary surge is “transitory.”
Here is why I am convinced Powell is correct: In the appliance industry, the vendors regularly wrestle over the question of market share vs. profitability. Trust me; during my years at Whirlpool, we spent countless hours discussing whether to protect market share or maintain profits.
If you are running a business, then you know everything is up — wages, commodities, transportation, and so on, and there is a desire to pass these costs to the consumer. The only thing that sways a company to defer a price increase is the fear of losing market share and floor space. My experience has been that once you lose share in the appliance business it is extraordinarily difficult to ever get it back.
If consumers are buying everything you have in stock, prices will continue to rise. But there is a point in the supply-and-demand curve where this will stop. Manufacturers will then be forced to face the share-vs.-profit equation, as will you with your own retail customers.
In the back half of the year, when supply chains are fixed, back orders go away, and parts become available, manufacturers will have to compete for market share. This phenomenon will happen across all industries, and at that point the inflationary pressures will start to subside.
COVID-19 was nearly wiped out 30 days ago, with cases, hospitalizations, deaths and the positivity rate all in decline. Today, all 50 states are showing increases in the coronavirus, with the infection rate growing due to the Delta variant. I do not have enough information to make any predictions on this situation, but it is very concerning.
It is my opinion that the rapid economic growth we have seen this year peaked in Q2. I do believe you will see a stronger than normal end to 2021, but the second half will be slower than the first. With nearly 10 trillion dollars in stimulus over the past three years, across-the-board reopenings, vaccination rates nearing 50 percent, and consumer confidence rising, our economy will still be the envy of the world.
America will see continued declines in unemployment, increases in wage growth, and consumer spending hit all-time highs. But at some point, a normal, post-pandemic economy will return.
Watch for the Q2 GDP report, which will be out in a few weeks. The Wall Street Journal reported recently that we could see growth as high as 9 percent, which would be one of the best results since 1983.
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.