U.S. retail spending is declining as inflation begins to bite
U.S. retail spending is declining as inflation begins to bite

U.S. retail spending is declining as inflation begins to bite

NEW YORK (AP) – After starting the year in a buying mood, Americans lowered their spending in February on gadgets, home furnishings and other discretionary items as higher prices for food, gasoline and shelter take a bigger bite out of their wallets.

Retail sales rose 0.3% after registering a revised 4.9% jump from December to January, driven by wage increases, solid employment and more money in bank accounts, according to the Ministry of Commerce. January’s rise was the biggest jump in spending since last March, when U.S. households received a final federal stimulus check of $ 1,400.

Business in furniture and home stores fell 1% in February, while sales in consumer electronics and white goods stores fell 0.6%. General merchandise stores fell 0.2%, while online sales fell 3.7%. Restaurant sales rose 2.5% as shoppers shift more of their spending on services as the threat of COVID-19 disappears.

And there is new pressure that could send prices even higher, namely the Russian invasion of Ukraine. Most Western companies including retailers such as Nike, fast fashion retailer H&M and coat manufacturer Canada Goose have suspended sales in Russia after Russia sent tank columns to the capital Kiev and heavily shelled the southern port city of Mariupol and other city centers.

Many retailers are preparing for how the war will exacerbate supply shortages, with reports already emerging of limited supplies of wheat, vegetable oils and electronic components such as chips that are likely to send prices higher. In addition to the Russian invasion, rising COVID-19 cases and renewed restrictions in China could intensify supply chain problems.

“The problem is that as households become more and more pressured on the essentials, there is less budget available for discretionary spending,” said Neil Saunders, CEO of GlobalData Retail. “Admittedly, there is an increased buffer of savings that consumers can use to finance their consumption, but this is a short-term solution in an environment where inflation is becoming a persistent problem.”

Saunders noted that such persistent inflation is dangerous for retailers because it will mean that shoppers will again consolidate their consumption and spread it to only a few players, reversing the trend of how many retailers in the last year’s time saw their sales increase. Walmart executives told analysts in February that the chain often benefits during periods of inflation like this, with middle-income families, lower-middle-income families and even richer families becoming more price-sensitive.

And many retailers have recognized that a protracted war could damage customer confidence.

“I think we’re prepared for an environment of great uncertainty,” Kohl’s CEO Michelle Gass told analysts during her earnings call in response to a question about how the war could affect its business. “So like everyone else, we want to stay close. We want to be responsive.”

David Bassuk, global co-manager of AlixPartners’ retail practice, said shoppers will be “excited about cash” because of sky-high prices at the grocery store and elsewhere, and retailers of discretionary goods will have to offer big discounts to get customers in.

Earlier this month, the Ministry of Labor reported that consumer inflation, driven by rising costs for gas, food and housing, had risen by 7.9% over the past year, the sharpest increase since 1982. The 12-month period ended in February, meaning , that it does not. include most of the oil and gas price hikes that followed the start of Russia’s war on 24 February.

Raw and natural gas has risen by about 30% this year, although energy futures withdrew this week.

In a memo released Wednesday, Lydia Boussour, lead U.S. economist at Oxford Economics, said rising prices for essential goods like gas and food are straining customers’ budgets. But she also noted that wage increases and ample extra savings should sustain consumer spending in the coming months.

Employers added a robust 678,000 jobs in February, the largest monthly number since July, the Department of Labor reported earlier this month. Unemployment fell to 3.8% from 4% in January, extending a sharp drop in unemployment to its lowest level since before the pandemic broke out two years ago.

In fact, Walmart announced Wednesday that it plans to hire more than 50,000 U.S. workers during its current accounting quarter for a variety of stores, clubs, supply chains and technology companies. Walmart said its starting salary is now up to as high as $ 30 per hour for select roles in certain markets.

In light of such an uncertain environment, the National Retail Federation, the country’s largest retail group, predicts that growth in US retail sales this year will slow to between 6% and 8% from the record annual growth rate of 14% in 2021. The group cited rising inflation, tightening of monetary policy and less fiscal stimulus. Last year’s figures marked the highest growth rate in more than 20 years. Still, this year’s projection is well above the 10-year pre-pandemic growth rate of 3.7%.

The detailed report, released on Wednesday, covers only about a third of total consumer spending and does not include services such as haircuts, hotel stays and airline tickets.

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AP Economics writer Chris Rugaber of Washington contributed to this report.

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Follow Anne D’Innocenzio: http://twitter.com/ADInnocenzio


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