In spite of rampant inflation, political turmoil and a war in Europe, retail industry experts are predicting continued strength in consumer spending. However, that could change if inflation continues to soar at a historic rate.
On March 15, the National Retail Federation reported its annual retail forecast for this year, which anticipates that retail sales will increase between 6% and 8% to more than $4.86 trillion in 2022.
“NRF expects retail sales to increase in 2022, as consumers are ready to spend and have the resources to do so,” said NRF President Matthew Shay.
“We should see durable growth this year given consumer confidence to continue this expansion, notwithstanding risks related to inflation, Covid 19 and geopolitical threats.”
NRF forecasts that 2022 retail sales will total between $4.86 trillion and $4.95 trillion. As usual, the federation’s numbers exclude automobile dealers, gasoline stations and restaurants.
Non-store and online sales year-over-year – which are included in the total figure – are expected to grow between 11% and 13% to a range of $1.17 trillion to $1.19 trillion.
The 2022 figure compares with 14% annual growth rate in 2021, the highest growth rate in more than 20 years. This year’s sales forecast is notably above the 10-year, pre-pandemic growth of 3.7%.
NRF anticipates strong job and wage growth and declining unemployment. It also projects that full-year GDP growth will be slower this year, around 3.5%, given the surge of inflation, the tightening of monetary policy and less fiscal stimulus.
“Most households have never experienced anything like this level of inflation, and it is expected to remain elevated well into 2023,” NRF Chief Economist Jack Kleinhenz said.
“After decades of relatively low levels, inflation is on everyone’s mind and has been making consumers and businesses miserable as prices have picked up dramatically over the past year,” he explained.
Although a roller coaster ride of incoming data is expected in the next few months, consumer fundamentals remain in place, Kleinhenz pointed out that household finances are healthy and strong job and wage growth should support solid growth for consumer spending for 2022.
He also stressed that the damage done to consumers by inflation so far has been spread unevenly among the population
“Headline inflation numbers may mask what is being faced by different consumers since spending patterns vary widely and lead to significantly different inflation experiences,” Kleinhenz said. “What a person buys can have a tremendous effect on how severely the pain of inflation is felt.”
Older households, for example, spend more on health and medical services than younger households, which spend more on education and technology or TV streaming services.
In addition, some spending that drives inflation consists of infrequent big-ticket purchases like a car (up 12% for new vehicles or 41% for used vehicles in January) or a new home.
Consumers expect inflation to grow 5.8% over the next year – less than in 2021 but still well above pre-pandemic levels – according to the latest Survey of Consumer Expectations issued by the Federal Reserve Bank of New York.
But high rates are not expected to be long-term, with the survey showing consumers foresee a relatively normal 3.5% over the next three years.
“While actual price gains are expected to slow down in the coming months as they lap relatively high readings from the year before, the Fed is concerned about the risk of an unwanted jump in inflation expectations,” Kleinhenz said.
“If consumers expect rampant inflation to continue, the possibility of a wage-price spiral could be unleashed as they demand to be paid more. In that scenario, the Fed would need to be even more aggressive with its rate hikes – a move that might stop inflation but at the risk of slowing the economy to the point of causing a recession.”
On March 16, NRF also reported strong retail sales for the month of February. The U.S. Census Bureau reported that overall retail sales that month were up 0.3% seasonally adjusted from January and up 17.6% year-over-year.
That built on a monthly increase of 4.9% in January over December – more than a percentage point higher than the original estimate of 3.8% – and January’s 14% increase year-over-year, NRF noted.
February sales were down in two-thirds of categories on a monthly basis but up across the board on a yearly basis, with year-over-year gains were led by clothing and building materials stores and unadjusted online sales.
Clothing and clothing accessory stores were up 1.1% month-over-month seasonally adjusted and up 31% unadjusted year-over-year. Building materials and garden supply stores were rose 0.9% month-over-month seasonally adjusted and up 14.9% unadjusted year-over-year.
However, the rest of the categories showed signs of slowing. One of these – ecommerce – had enjoyed notable strength and growth during the course of the Covid pandemic beginning in 2020.
Online and other non-store sales in February were down 3.7% month-over-month seasonally adjusted but up 13.9% unadjusted year-over-year.
The rest of the categories also saw declines:
- General merchandise stores were down 0.2% month-over-month seasonally adjusted but up 12.6% unadjusted year-over-year.
- Sporting goods stores were up 1.7% month-over-month seasonally adjusted and up 11.6% unadjusted year-over-year.
- Health and personal care stores were down 1.8% month-over-month seasonally adjusted but up 8.7% unadjusted year-over-year.
- Grocery and beverage stores were down 0.5% month-over-month seasonally adjusted but up 8% unadjusted year-over-year.
- Furniture and home furnishings were down 1% month-over-month seasonally adjusted but up 7.4% unadjusted year-over-year.
- Electronics and appliance stores were down 0.6% month-over-month seasonally adjusted but up 2.6% unadjusted year-over-year.
The Census Bureau numbers do not exclude autos, gas stations and restaurants. NRF’s numbers, which do, showed that February was down 1% seasonally adjusted from January’s revised numbers but up 13% unadjusted year-over-year.
In January, sales were up 5.9% month-over-month and up 9.6% year-over-year. As of February NRF’s numbers were up 11.8% unadjusted year-over-year on a three-month moving average.