Indeed the recent economic narrative has been dominated by inflationary concerns, sweeping across the global economy. However, data on retail sales suggest a different story altogether – a story about robust growth and resilience. Despite concerns, the counterbalancing force of strong consumer spending, mostly in the retail sector, appears to project a hopeful outlook.
The purveyors of doom and gloom may have been a bit quick to roll out narratives of stagnation and economic regression. Core retail sales, stripped down to exclude automobiles, gasoline, building materials and food services, surged by an unexpected 1.0% last month. This has allayed fears of a slowdown and turned the spotlight to the might of consumer spending once again, a critical cog in the wheel of economic growth.
This boom in retail sales is primarily driven by the changing consumer behavior and attitudes. After being holed up during the pandemic, consumers now feel more confident about returning to in-person shopping, signaling a return to some semblance of normalcy.
Moreover, the rise of e-commerce has also played an instrumental role in buoying retail sales. The convenience of online shopping, along with competitive pricing and myriad options, has pushed more consumers to shop from the comfort of their homes. This digital shift was reflected in the data, where non-store retailers, primarily online shopping giants, saw a significant spike in sales.
Personal income saw a hike due to government stimuli and increased employment rates. This infusion of capital into the average household has increased discretionary spending, resulting in more purchase power that ultimately drives retail sales. High-frequency alternative data suggests that department stores, clothing, and clothing accessories stores saw the largest bounce in physical sales.
However, it would be remiss not to address the inflation elephant in the room when discussing economic recovery. While inflationary pressures are tangible, most economists remain confident that it will be transitory. The Federal Reserve, for instance, continues to back the theory of inflation being temporary, driven by resolving supply chain issues and pent-up demand release.
What makes this retail sales growth narrative even more compelling is that it’s happened against the backdrop of inflation fears, which theoretically should discourage consumer spending. This trend essentially speaks volumes about the resilience of consumers and their indefatigable spirit to spend, invest, and in turn, drive the economy forward.
In fact, it seems that consumers are willing to bear the burden of high prices for the sake of contributing to economic recovery. A considerable part of this willingness can be attributed to the availability of stimulus checks and increased savings that accrued during the lockdown periods.
The silver lining here is that the consumers, by virtue of their action, have jammed the brakes on a potentially negative economic trend, highlighting the significant role of retail sales in fuelling growth and managing inflation fears.
Looking ahead, as economies continue to reopen, it’s reasonable to expect increased consumer confidence levels. With this confidence, it’s likely that we’ll see a continuation of this robust retail sales growth, thereby fueling economic growth and keeping inflation fears at bay. What remains encouraging is the data-derived knowledge that despite inflation being a lurking concern, it has not deterred the consumers’ spirit to spend, signaling that all is not lost in the battle to rev up the world economy.
