Consumers Are Still Spending Despite Their Fears Over Inflation

Wednesday morning the Commerce Department reported that US retail sales grew 0.3% in November, a modest monthly increase, yet still the fourth consecutive month of growth. November sales were up 18.2% from the same month last year and they followed a 1.8% jump in October when consumers got an earlier-than-usual start on their holiday shopping. 

“The 2021 holiday shopping season began in earnest on October 1,” says Garrick Brown, COO and director of advisory services at Lockhouse, who joined the firm in October. The month’s tally was particularly noteworthy as the average for the previous ten years had been about 3% growth annually, he tells GlobeSt.com. 

GlobeSt.com caught up with Brown several days before the November retail sales numbers came out.  But while a relatively strong holiday shopping season is expected, Brown also discussed the ongoing supply chain issues that have been troubling the industry and the impact those will have on the sector as well as consumers’ fears over inflation.  Excerpts from the conversation follow. 

On retailers being prepared for the holiday season

Supply chain issues are clearly one of the major challenges in the marketplace today, but they appear to be playing out unevenly. Most of the major chains in their latest earnings calls have acknowledged minor challenges but have insisted that they are prepared for the holiday season. So far, that appears to be true. I worry that independents and smaller chains may not be in the same boat—but so far the anecdotes I am hearing from the market seem to indicate that while this has been a challenge, it hasn’t been a major one.

About the Black Friday shopping numbers 

I do think there will be other outcomes relating to supply chain issues and the public perceptions around them. While Black Friday foot traffic numbers were up 48% from 2020, they were still down 28% from 2019 (our benchmark for “normality”). But I suspect the consumers that showed up were likely spending more. 

Also, it is critical to remember that the significance of Black Friday itself has been diminishing over the past decade as the holiday season has been dispersed both because of the impact of eCommerce and retailers starting deep discounts earlier and earlier before Thanksgiving.

On whether there will be discounting

That last factor, because of the supply chain disruptions, is simply not going to happen this year and it may be an additional boon to retailers. The cycle of race-to-the-bottom discounting has been eating away retailer margins for years and, this year at least, that cycle is not going to happen—at least nowhere near to the same degree as in the past. Will it permanently change the holidays? No, but this year we should see even stronger profits for retailers—even if higher shipping costs may be in play for many.

What about consumers’ concerns over inflation? 

There is a complete current disconnect of consumer sentiment to consumer economic fundamentals in play right now. 

This is all about concern over inflation, but every other metric out there demonstrates that consumers are in an immensely better place (on the whole) than they were before the pandemic. Wages are skyrocketing (record levels of available jobs—which is why the Quit Rate is at a record level—this indicator is actually one that sounds negative but when it is high it means the job market is great and workers have the confidence to leave a job to find something better).  The Fed tracks checkable deposits—basically the amount that Americans have in their bank accounts. That number has increased by $5.1 trillion since February 2020.  

Yet, at least one measure of consumer confidence (the OECD) had October US consumer confidence falling below where it stood in April 2020—when we were looking at the very real possibility of a deep global depression. Yet they also were spending enough to post double digit gains (compared against 2019—the last year of normalcy) even for categories like department stores and apparel that had been growing anemically or declining before the pandemic. 

The moral of the story is that consumers really do not like inflation. But their apparent declining confidence hasn’t impacted their behavior at all at this point.”