ANALYSIS
Mixed signals :
What lies ahead for retail
While many economists are no longer predicting the US will fall into a recession this year or the next , leading indicators of growth still present a blurry picture .
By Nicole Kirichanskaya
After hitting a 40-year high of 9.1 percent in June 2022 , the US inflation rate has steadily declined over the past year , falling to 3 percent in June , before accelerating slightly to 3.2 percent in July . While this is certainly good news for retailers – theoretically easing the pressure on consumer spending and cost of doing business – the near-term economic outlook remains mixed .
A recent report from Coresight Research examining 10 leading indicators of retail sales growth – including the unemployment rate , labor force participation rate , disposable income per capita , average hourly wages , personal savings rate , consumer sentiment , average gas price , federal funds rate , housing starts and home price index – found an even split between factors that are likely to drive retail sales growth and those likely to hinder it .
Understanding the impact of these macroeconomic factors on consumer behavior is crucial , especially as the holiday season ( always a make-or-break period in retail ) approaches . Businesses could be doing everything right – creating and marketing desirable products with a clear market-fit – but if inflation or the housing market is dampening consumers ’ spending power , they may struggle to hit their targets .
Consumers do find ways to spend in difficult times . During the Great Depression in the 1930s and the Global Financial Crisis in the 2000s , for example , sales of small luxury products like nail polish and lipstick boomed , prompting the term the ‘ lipstick index ’. While consumers cut back on various forms of discretionary spending in these periods , they still indulged in affordable luxuries , such as lipstick , which provided some enjoyment during an otherwise bleak time .
To help retailers navigate the next few months , we spoke with Coresight ’ s head of global research and managing director of data-driven research John Mercer about the firm ’ s most recent report , US Retail and Consumer Outlook , August 2023 , and its key findings related to inflation , the employment rate and the state of the housing market .
The state of play One positive take away from the report is that the retail sector has largely retained the gains it made during the Covid-19 pandemic .
Pre-pandemic , the two-year growth rate in retail sales averaged 7.4 percent , or just under $ 300 billion . This jumped
30 www . insideretail . us September 2023