with Taylor St. Germain


In the midst of the busy holiday shopping season, ITR Economist Taylor St. Germain provides an update on retail sales and highlights key consumer trends in the latest episode of TrendsTalk!



The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi everyone. My name’s Taylor St. Germain, and welcome to this episode of TrendsTalk with ITR Economics. Today I wanted to provide an update on retail sales, given the time of year, a great time to be talking about retail sales with Black Friday, just passing last week. So I wanted to chat a little bit about retail sales. I don’t have Black Friday data. We’ll have that within the next month here and we’ll be able to do some comparisons. But I really wanted to give an overall state of where’s retail sales at today, especially taking a little bit more of a consumer angle. The consumer receives a lot of press, a lot of media coverage around a weakening consumer, and we’ve talked about this all the way back in July on a previous episode where the consumer was showing some resiliency. And I still feel that the consumer is quite resilient today, but that’s not to say that there aren’t concerns out there, and concerns as it relates to what that means for retail sales.

So I wanted to unpack a few trends here today. The first trend that I wanted to discuss is the relationship between the personal savings balance index. It’s a deflated series related to retail sales, deflated. So if we look at where the consumer has been in terms of personal savings balance, if we look back, really a peak emerged, as we looked at that mid 2021 timeframe in the savings balance. And that savings balance has been generally declining ever since. Now, the decline is concerning. I don’t want to minimize a concern. We have fewer savings today, and that typically spells bad news for retail sales in the future. But again, I’d really like to highlight where that number is today, compared to where we were before the COVID pandemic impact. And so if you look at where we are today, we’re still at a much higher level in terms of savings than where we were in March 2020, entering the pandemic.

So really what does this mean? Well, you’ll hear from me here shortly. We have a mild downturn in retail sales next year, really almost flat, coming in about 0.7% below in terms of retail sales in ’24 compared to ’23. So this isn’t a significant downturn by any means, but there is some weakness in there. And I think that savings balance highlights some of that weakness of yes, we are seeing savings decline since that peak in 2021, but we’re still above where we were going into the pandemic, when you look at 2019, 2020 levels. So a little bit of good news, a little bit of bad news, the bad news, savings are declining. The good news is we’re still saving more money than where we were before we entered the pandemic. But more specifically, I wanted to call out the movement in retail sales over the last few months.

If we look at the rate of growth for retail sales in terms of a 12/12 rate-of-change or a year-over-year growth rate, we’ve seen that growth rate slow down to 3.6%. That’s coming off a peak of about 20% in that 12/12 growth rate back in February 2022. So clear slowdown, savings part of that story, but retail sales have continued to retreat towards that zero line. And so when we look at retail sales for next year, we have retail sales coming in at about $8.18 trillion in 2024, which is down about 0.7% from that 8.24 trillion that we’re expecting for the end of 2023.

Now, again, is this a major downturn in retail sales? No. If you think back to 2008, 2009, that retail sales low was down around approximately 9.5%, so minus 0.7% in ’24 compared to the low back during the financial crisis of 9.5%. Clearly not calling for the bottom falling out or a financial crisis like we saw in ’08, ’09, but it is going to be a slowdown that many of us are feeling, many of our clients are feeling today, and that slowdown will progress and continue as we move into 2024. Now, there’s a number of things that we’re looking at as it relates to that. Again, I mentioned consumer strength, it’s higher interest rates, it’s lower savings, all playing an impact in that retail sales number slowing down. We also saw a lot of the big box retailers report a dip in their third quarter earnings as we looked at 2023, and as our team in our latest edition of the trends report called out, that decline was typically related to discretionary, in big ticket items. So we have some of these pressures on the consumer. We have the retailers reporting some decline in sales.

Not to mention, we recently had federal student loan payments start once again, which is another challenge for some of our consumers out there, is that takes another bite out of their disposable income, discretionary income, and certainly the savings that they’ve built up over the last few years. So you can see that the consumer is facing pressure and some of those consumer pressures are working their way into the weakness into retail sales. Now, the consumer is so important. That’s why I talk about the consumer every few months on the TrendsTalk, because when you look at overall GDP here in the U.S., the consumer, give or take the year, makes up about two thirds of GDP consumer spending. So it’s really important that we watch the strength of the consumer and with the strength of the consumer weakening with some of the metrics like retail sales weakening, it all feeds into our thought process around a mild recession in 2024.

And it seems to be that the data is certainly shaping up that way, which is why we haven’t changed any of our headline forecasts or expectations as we look at next year. Another trend that I wanted to call out is just continuing to reiterate the difference between a deflated series and an inflated series. So when I talked about retail sales earlier, just a few minutes ago, and I said the annual growth rate has slowed down to 3.6%, that’s an inflated number. So we still have pricing impacts impacting that number, and when we strip out the pricing impacts, when we strip out the inflation and deflate a series, you look at total retail sales deflated, that’s actually down 1.1% today. So put that in perspective a little bit. If you look at inflated retail sales, we’re at 3.6% positive growth. When you strip out that inflation piece and look at a deflated series, we’re down 1.1%.

So you can see how inflation and pricing’s still propping up a series like retail sales, but when we look through that noise and deflate that series, it’s a much more concerning picture. So all in all, retail sales is progressing as we would expect. I’ll have a future episode on the Black Friday impact, really looking at month-over-month changes to see if this Black Friday season, this holiday shopping season, as a whole, was weaker than previous. That data, of course, will come in about a month from now. So stay tuned, we’ll have more to come as it relates to this holiday season. But overall, retail sales slowing down like we would expect. The consumer feeling a little bit of pressure despite still showing some resiliency, and this all bakes into our mild recession outlook as we look at 2024 for the U.S. economy. I hope you found this information helpful. I’m Taylor St. Germain with ITR Economics. Thanks for joining me on this episode of TrendsTalk, and I’ll see you on the next one.