While Delta concerns linger, retail giants like Walmart anticipate robust holiday sales
On Thursday, the Census Bureau revealed that retail sales climbed by 0.7% in August, trouncing economists' predictions of a 0.8% decline. This uptick was especially noteworthy as Refinitiv-polled economists predicted a 0.8% contraction in August.
Retail sales in furniture stores jumped by 3.7%, while those in clothing stores and grocery stores increased by 0.1% and 2.1%, respectively. Online sales experienced a 5.3% surge.
This data serves as an encouraging sign that consumer spending is gearing up for the winter season, an essential phase for holiday retailers. Nevertheless, the rosy figures disclosed on Thursday belie a more nuanced story.
"The rise in online and grocery store sales, while clothes shop sales remain stagnant, points to Delta still playing a significant role," pointed out analysts.
Economic activity in the restaurant and bar sector remained sluggish in August, due to public concerns over escalating COVID-19 cases and the highly contagious Delta variant. Sales at reopened eateries and watering holes were likewise flat.
Auto sales dropped by 3.6% last month, leading to a decrease in overall retail sales. Excluding automobiles and automotive parts, retail sales expanded by 1.8% in August.
The automotive sector finds itself in an unusual position post-pandemic. New car production came to a standstill in the first quarter of 2020 due to lockdowns and supply shortages. Demand for used vehicles, however, skyrocketed and pushed prices higher. Despite a slowdown in August sales, experts anticipate a rebound following Hurricane Ida, which, in turn, should boost demand and prices for vehicles as consumers look to replace vehicles lost during the disaster.
*United States holiday shopping prospects shimmer in the face of uncertainty*
Analysts predict that US consumers will continue their generous spending habits during the holiday season, despite lingering pandemic concerns.
Employment opportunities have been growing in the economy, boosting purchasing power for consumers. "The outlook for consumer spending remains quite favorable, especially in the short term," stated Gus Faucher, Chief Economist at PNC Financial. "Consumers will spend."
The strong retail sales data might even trigger a wave of upward revisions in economic projections for the remainder of the year, said Ian Shepherdson, Chief Economist at Pantheon Macroeconomics.
"Such positive surprises of this magnitude are rare, showing the true resilience of consumers," Shepherdson commented.
Retailers and logistics companies are preparing for the holiday rush by stocking up on additional inventory and adding temporary staff to handle the influx of holiday shoppers.
"We expect to see strong demand for the rest of the year," Doug McMillon, Walmart CEO, stated last week at an investor conference. "Customers and families want to celebrate Christmas. They want to celebrate Thanksgiving."
Deloitte projected in a report released this week that retail sales during the holiday season could surge by up to 9% compared to 2020, while online sales could increase by up to 15%. The consulting firm estimates that rising vaccination rates and higher savings rates among private households will fuel holiday sales.
"Online sales will continue to grow, as consumers display stable trends in online shopping across all categories," commented Daniel Bachman, US economist at Deloitte, in a press release on Tuesday.
However, Delta-related concerns persist throughout the holiday season as some retail chains reported a decline in foot traffic once Delta models emerged and shoppers switched to online shopping.
Furthermore, supply chain disruptions and labor shortages pose threats to the retailers' holiday dreams. Higher prices than in previous years could limit some shoppers' capabilities to make holiday purchases and afford gifts.
Insights:
The Delta variant is expected to impact holiday sales in the US by causing factory closures in countries like Vietnam, where a significant portion of clothing is manufactured. This disruption could lead to shortages of apparel products, particularly affecting the apparel industry. Additionally, the variant may contribute to further port closures, which could exacerbate shipping delays and affect the availability of various goods, including electronics, appliances, and home goods, during the holiday shopping season.
Despite these challenges, strong retail sales figures from the previous holiday season suggest that consumers are likely to continue their spending habits, albeit with some caution. The National Retail Federation reported that holiday spending in 2020 accounted for roughly one-fifth of annual retail sales, with online spending making up over 26% of that figure. However, the potential for delays and shortages due to the Delta variant could make it more difficult for consumers to get the items they want, potentially leading to increased early holiday shopping and a focus on securing essential items ahead of time.
