Retail Sales and Consumer Sentiment

October 21, 2019

I recently embarked on a home renovation project: the updating of my bathroom.  I am familiar with the work involved having grown up in the home construction business, but, as most people experience, major home projects never go to plan.  The unexpected challenges gave me a reason to get to know my local hardware and plumbing stores.  Thankfully there are three such stores near me. I shopped at them all as it was surprisingly difficult to find one store that had all my needs in stock. 

One of the stores is a branch of Lowes where the parking lot was nearly at capacity each time I visited, even when rain was pouring down.  Despite the heavy “foot traffic” the store was not on top of its inventory levels.  From tub drain extractors to drywall repair kits, stocks were down or completely depleted.  It seems that, in my neighborhood at least, the do-it-yourself renovation industry is strong.

My home improvement shopping experience is indicative of the overall performance of retail sales this year, which until September had been strong. Even the decline in September was small at 0.3%. Moreover that has been the only decline since February, so the longer-term trend still looks sound. And of course my own purchases will boost the October numbers. 

In contrast to the slower September sales, consumer sentiment has rebounded recently.  The preliminary October results from the University of Michigan suggest a 3% increase from the September levels.  These results might reflect the lower expected inflation and strong real income gains that have led to the highest real income expectations since the survey began in 1975.  US unemployment remains at low levels not seen since the 1960’s, adding to consumers feelings of confidence going forward. 

The high levels of consumer sentiment combined with the low cost of borrowing seems to have given consumers the opportunity to “re-lever” themselves.  Total household debt now stands at its highest level in history even though the housing related portion of this debt is not yet back to its 2008 peak.   This suggests that consumers are being more cautious in how they are borrowing even though debt levels are higher in nominal terms.

There has been much talk lately of trade wars and political in-fighting, but so far this appears to have had limited effect on the retail consumer.  Tariffs have had an impact on prices, but not yet enough to meaningfully increase inflation. 

Politics will be politics, and there is not much that any one individual can do other than watch the ongoing saga unfold.  Despite the political in-fighting the overall economy remains strong.  And while this is true it is always sage advice not get ahead of oneself.  It is always good to proceed with caution, especially when things are looking rosy.  We, as US consumers, should never forget the lessons we learned during the Great Recession.

Carey Blakley