Inflation, Labor Market Pose Growing Challenges to Retail
Retail sales could be lowered by reduced consumer spending if price pressure does not react quickly to the Fed’s hiking rates.
Inflation and the labor market pose challenges this year for the retail asset class, says a new report from Marcus & Millichap.
The study calls inflation, now at a near 40-year high, the largest threat to retail sales.
“The pressure on the Fed to draw down quantitative easing and begin raising interest rates has risen significantly in the past few months, and at least two increases are likely,” the authors predict.
They warn retail sales could be lowered by reduced consumer spending if price pressure does not react quickly to the Fed’s hiking rates.
Inflationary pressure will be exacerbated, Marcus & Millichap cautioned, by employers raising wages to pull retail workers off the sidelines.
Supply chain issues are another factor behind rising inflation, Marcus & Millichap’s John Chang recently said. “Basically, people want to buy more stuff than our supply chain can handle right now, so there are shortages and that means prices go up,” he said. Retail sales are up 16% over 2019 numbers, while the amount of product moved by trucks in the US is down 5.1% over the same period.
The labor force participation rate of 61.9 percent is 250 basis points below the level prior to the pandemic with approximately 11 million jobs available across the nation, the study notes.
Looking over the past holiday shopping season, the report says core retail sales dipped 2.5 percent in December as spending that usually occurs closer to the holidays was spread over a longer period.
Factors in the decline, notes the study, were the omicron variant of COVID-19 elevated case counts, which kept more people at home and fewer commutes pulled down sales at gas stations 0.7 percent.
Despite the negative retail results in December, the study says they were up 16.5 percent from one year ago with consumers still having more than $5 trillion additional funds in savings and money market accounts.
Looking ahead, the authors say single-tenant vacancy has recovered from the downturn and should go down further this year as new business formation applications hover near all-time highs.