By Joe Higgins, Quest 4 Quality
Why is business so good, given the myriad of problems in the economy?
We have massive disruptions in our supply chains, container ships on both coasts are languishing offshore waiting for an open berth, and truck drivers are in short supply.
In addition, the automobile business is hurting due to a chip shortage, there are empty shelves in most stores today, and the Delta variant has constrained consumer spending.
And if that’s not enough, housing is in short supply, forcing prices above a home buyer’s ability to afford even the most modest homes.
Some days it feels like there is little hope that we will see long-term economic growth in America as one crisis after another hits our shores. We have seen hurricanes in the South, wildfires and drought out West, and extensive flooding in the East. And thanks to the virus and its mutations, we get vaccines, wear masks and stay home — not the life we expected.
But here are my thoughts about our future. As readers of this column know, I have been predicting a robust 2021 since March and I still see that in the cards. There are road bumps ahead to be sure, but the real economy is still going strong.
While the virus has impacted millions of our citizens and nearly 690,000 have died, most of the population has been medically unaffected by COVID-19. Yes, we know people who have had the virus, who have been hospitalized, and even those who have died, but as BrandSource Convention demonstrated, we are still healthy and active. Most consumers have jobs, and many have benefitted from the massive amounts of stimulus cash that have been distributed across the population.
Right now, as a country, we have more money in bank accounts than we did pre-pandemic. Only a tiny minority of Americans have lost jobs, waited in a food line, lost their homes, or experienced a pay cut. In other words, most of the economy is doing OK, and consumers have cash, people are out shopping, and many Americans are traveling and going out to dinner. Let’s not forget the less fortunate, but right now, our economy is working.
The Federal Reserve has maintained a low interest-rate policy for years, which drives both borrowing and spending. During an inflationary period, this policy pushes consumers to go out and buy goods now rather than later. Add to this the pandemic that has encouraged consumers to spend money on their homes rather than services, and you have a perfect storm of buyers flooding into appliance, home furnishings and electronics stores.
Let me walk you through the good news because this is America, and we are still world leaders.
In August, an unexpected gift arrived as retail sales rose even as the Delta variant surged across the U.S. Economist consensus was for a drop of 0.8 percent, and instead we had a gain of 0.7 percent from July.
The good news for our industry was furniture stores, on an annualized basis, were up 15.6 percent, and appliance and electronics stores were up 18.2 percent.
Still, persistent supply shortages plague our industry, and I don’t believe we will see any relief until 2022.
The Consumer Price Index (CPI) edged up 0.3 percent in August, which was the smallest increase since early 2021. The main impetus for this slowdown was a 1.5 percent drop in the price of automobiles, which had accounted for more than half of the CPI’s spike over the past eight months.
The U.S. will continue to experience inflationary pressures this year and next due to supply chain issues, but eventually the Fed will bring it under control. While we will not see prices rise as fiercely as they did in the 1970s, the increases we have experienced will remain permanent.
The Federal Open Market Committee — the monetary policymaking body of the Federal Reserve system — is now predicting inflation to increase 3.8 percent this year, which is above the 3 percent forecast at the last Fed meeting.
According to the National Association of Realtors, we finally witnessed a slowdown in the red-hot housing market in August, as existing home sales fell 2 percent from July. We knew this was coming at some point, as prices had exceeded the level that buyers could afford, even with historically low interest rates. Still, sales of existing homes are up 16 percent from 2020.
The unfortunate statistic for those waiting to buy a home is that housing inventory was down 13.5 year over year by the end of August, so it remains a sellers’ market. We will continue to see median sales prices increase but not at the same pace as the past 12 months. The good news is that higher home equity leads to more remodeling, which is good for your business.
The Bottom Line
The Federal Reserve has significantly changed its growth predictions and now expects a reduction in GDP and higher inflation.
The Atlanta Fed, which now forecasts the GDP, had been projecting a 7 percent increase all year, but as I write this, it has reduced its prediction to 5.9 percent. This may sound like bad news, but keep in mind that any period over the past two decades with a GDP increase of 5.6 percent would be considered a great year.
Not everything will be great as we approach the holiday selling season and 2021 nears an end. But it will be another excellent cycle for the home goods industry.
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.