The bottom line is that consumer spending gathered steam late last year, and according to today’s Retail Sales [3] data release, consumer spending is on track to post a moderately strong gain in Q1, a trend consistent with other indicators of consumer spending. [1]
Retail sales rose 0.3 percent in January, indicating a moderate start to the quarter for consumer spending growth. The January increase is a bit below private sector expectations. One possible reason why sales came in weaker than expected is because of the winter weather conditions across the country during January (however, we can’t prove a weather-related dip in sales in a convincing way, so take this hypothesis with a grain of salt, or a bunch of rock salt if you live in the Northeast where several large snowstorms struck). If there was a weather-related dip in sales, then perhaps we’ll see a stronger uptick in the February data (also, the data can be volatile month-to-month, so never place too much weight on a single data point). Also, since the end of the recession, retail sales have gained 11.1 percent, surpassing pre-recession levels.
Why has consumer spending been so strong, and why do we expect consumers to continue to increase their spending in 2011? Well, the Middle Class Tax Relief Act of 2010 will certainly play a role -- recall that one provision of the tax act was to reduce the employee payroll tax rate by 2 percentage points from 6.2 to 4.2 percent. [2] Another reason for the strength in consumer spending that began late last year could be that many families are feeling wealthier because of the recent gains in the stock markets (the S&P 500 index is up over 20 percent from its lowest levels in September). If families are feeling wealthier [4], they may loosen their purse strings some. Indeed, the savings rate [5], BEA’s estimate of the share of disposable personal income that is not spent, a volatile measure at a quarterly frequency to be sure, has fallen by almost a percentage point since last summer. Finally, families may be feeling a bit more optimistic about their own finances and their outlooks. Indeed, some measures of consumer sentiment have picked up. As job gains pick up further, I wouldn’t be surprised if consumer sentiment picks up even more. [3]
~Mark Doms, Chief Economist, U.S. Department of Commerce
February 15, 2011
Changing Shopping Habits: Consumers Shifting to Supercenters and Electronic Shopping
Although retail sales and consumer spending have been increasing, that doesn’t imply that the rising spending tide lifts all retail stores’ boats. An interesting aspect of the Monthly Retail Sales survey is that it breaks out sales by type of establishment, such as motor vehicle and parts dealers or electronics and appliance stores. Looking at this detail yields some interesting insights into how shopping habits of consumers have changed over time. For instance, we all hear how Internet-related sales have increased, but by how much? Ditto for sales at supercenters.
Figure 1 shows the trends in total retail sales, sales at electronic shopping and mail order houses, and sales at warehouse clubs and supercenters, all of which have surged over the past several years. Sales through electronic shopping and mail order houses have climbed a vigorous 28.3 percent since the start of the recession, while sales at warehouse clubs and supercenters have advanced a very fast 11.1 percent. [4] [6] By contrast, total retail sales rose 1.0 percent over this period. Together, sales at these kinds of establishments comprise about 14.7 percent of total retail sales, up from 12.5 percent at the start of the recession. It should be noted that one reason why sales at warehouse clubs and supercenters have increased is because of the conversion of certain locations from standard retail stores to clubs or supercenters with groceries.
If sales at these types of stores have increased, that means sales elsewhere haven’t fared as well. As shown in Figure 2, sales in some areas - like those at electronic and appliance stores, furniture stores, motor vehicle dealers and department stores - have yet to return to their pre-recession levels. We will monitor these trends to see if they continue.
[7]
Brief Overview of the Census Retail Sales Data Methodology
Every month, the U.S. Census Bureau carries out the Advance Monthly Retail Trade and Food Services Survey to estimate retail sales by type of business. Questionnaires are mailed each month to a sampling of about 5,000 retail and foods service firms and ask about their dollar value of sales in the past month. These establishments are a sub-sample of the 12,000 firms in the regular monthly survey collected to provide end-of-month inventories along with sales. The selection of firms is by statistical methodology. All firms are stratified or divided into subgroups according to sales size and major type of business, and then within those groups, randomly sampled. About 1,300 firms are always included in the sample because of their significant impact on sales in particular industry groups. Smaller- and medium-sized firms participate in the survey for two years, at which point they are interchanged with new firms. Monthly figures are adjusted to account for seasonality and holiday and trading-day differences. By contrast, most data on retail sales produced by the private sector cover only small slices of retail sales. Further private-sector data are rarely seasonally adjusted, making inferences about near-term trends extremely difficult.
[1] One of those indicators is consumer credit [8], which increased in each of the last three months of 2010, after having fallen nearly every month between August 2008 and August 2010. Whether increases in consumer credit reflect increased demand or supply of credit is hard to discern, but the fact that this series has finally turned around is heartening.
[2] The official statistics on personal income for January will be released on February 28, and this release contains estimates of contributions for government social insurance, in other words, payroll tax withholdings.
[3] This statement is based on research I did while in my previous jobs modeling consumer sentiment. That research found that changes in payroll employment played a big role in swings in consumer sentiment.
[4] Electronic shopping as reported in the retail sales report captures internet sales for non-store retailers and shops that are able to separate out their internet sales. Some store’s internet sales are not recorded separately. The E-commerce report, a Commerce Department quarterly economic release, measures total internet-sales, and data for Q4 won’t be released until February 17.
