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Things to Be Thankful For in the Retail Sector

November 6, 2020

Despite prevalent economic uncertainty, there is some good news for trends in the retail sector. Catch our newest TrendsTalk episode with ITR Senior Forecaster Connor Lokar to learn more about expectations for this holiday season.


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Transcript by Rev

Connor Lokar:
Hello everyone. I'm Connor Lokar, Senior Forecaster here with ITR Economics, checking in for our latest Friends Talk. Today we're going to be talking about some things to be thankful for this retail season as we head into the home stretch of 2020. As we gradually make our way into the holiday season here we head toward a natural seasonal peak in holiday cheer, decorations, very likely some overeating. But there's another peak that is of greater economic interest. And that is that annual peak in retail activity that occurs on the fourth quarter of every year. And the most recent data indicates it's going to be a pretty jolly season for retailers and consumers alike. And that's a pretty remarkable feat given the state of the retail space and the general consumer just six months ago.

Every year we see a very apparent seasonal pattern in U.S. Consumption activity with quarterly volume. Typically peaking in the fourth quarter, rising in October, November, December topping out there, as folks search the stores and lately e-commerce outlets to pile on their holiday spending. This then typically drops off during the first quarter as individuals let their bank accounts recover. And what we're seeing as far as updated U.S. Total retail sales data through the month of September shows just remarkable health and strength in the U.S. Consumer.

When we look at nominal total us retail sales in September, that total is about $531 billion. Now that is up 7.1% from September, 2019. So no, not just better than a month ago, not just better than where things were saying March, April, may, and the peak of the lockdowns, but actually dwarfing September, 2019 levels in what was obviously a fundamentally healthy economy and consumer at that time a year ago. Total retail sales during the third quarter as a whole actually finished 3.6% above 3Q '19. And they're now maintaining a statistically significant accelerating trend on a quarterly basis, which is just an incredible turnaround from the 7.6% decline that we saw in total retail sales in the second quarter of 2020 compared to the same level a year ago.

And in fact, so far the seasonal rising trend off of the early spring low is actually up now 12.9% from that early quarterly low point, earlier this year. And, in terms of amplitudes, that plus 12.9% through September, that actually [inaudible 00:02:46] out as the strongest seasonal rising trend through September that we have seen since 1995. Beating both last year is very robust trend. And even though - as we look to the 2010 precedent in terms of a similar recession recovery dynamic. And as we look at our weekly Johnson red book, weekly retail measures, those indicate that that momentum continued during October and so far into early November with that most updated data.

So on the surface some very good numbers, but this is actually buttressed by a few really encouraging sub trends. When we look at ITR, at U.S. disposable personal income, that actually increased in September. And that's really encouraging because U.S. disposable personal income had actually been declining off of an April, 2020 peak. That peak was an outcome of the surge in DPI that was delivered by the cares act rollout in September, the $1,200 checks, the stepped up unemployment benefits. And we had seen that gradually rolling down in the subsequent months through May, June, July and August, which was slightly concerning. We were keeping an eye on that, but we actually saw that go up.

Now, disposable personal income in September actually jumped up to roughly $15.75 trillion. And I think it's worth noting that that's actually up more than $800 billion from the September, 2019 level. Again, when the consumer was quite healthy, it appears that the resurgent U.S. labor market is, at least temporarily, overriding that fading, disposable personal income trends and some of that fading support from the cares act. And hopefully diminishes the need for additional stimulus at least, such that is targeted at the consumer. And some folks, maybe appropriately concerned, they said, well, some folks... The bounce back in spending is coming at the expense of savings and that the consumer may be irrationally exuberant in their recent spending habits.

Now, to a certain extent, this may be true as U.S. personal savings are declining. However, personal savings through September is at just North of $2.5 trillion, $2.5 trillion squirreled away for savers across the United States. And when we compare this to last year, this is roughly $1.3 trillion, with a T, $1.3 trillion higher than the September, 2019 level. So yes, it is a factual statement to say that savings are coming down. However, as we look at the current savings level, with most recent data through September, that savings cushion or insulation that U.S. savers have in the bank is still $1.3 trillion above the same period a year ago when the consumer was operating at a very healthy level with no ill effect.

So there is some cushion there, there is some protection there for the consumer, certainly compared to where they were a year ago. And as we look back to, say the great recession a decade plus ago, at this point, far and away above where the consumer found themselves sliding into, say the great recession. And to top it all off, the labor market continues to improve. We just got the October labor market numbers, the October unemployment rate actually dropped down just below 7% now. Indicating that through just natural market mechanics during this recovery, more and more folks are coming back into the labor force and re-securing that purchasing power that was lost during layoffs and furloughs sustained back during the peak of the COVID-19 pandemic. And we're seeing that obviously play through in those retail sales and disposable income metrics.

So this is huge. Obviously, if you're a retailer, you're feeling very good about your prospects here for the remainder of the fourth quarter. But just for the U S economy at large, again we are a consumer dominated, driven and oriented economy here in the United States, which is what made the lockdown so damaging for our economy back in the second quarter. And is exactly what makes these most recent numbers so encouraged. Now, of course, the primary variable to watch remains COVID-19 of course. It's recent rise in case numbers could perhaps dampen some of this rebounding momentum that we're currently enjoying. But for now, myself, the team here at ITR, we really like what we're seeing heading into the final weeks of 2020. And it should be a jolly holiday season for a number of reasons. And chiefly among them is the fact that the consumer is very likely to be out and spending in full force. And we're certainly excited about that. So thanks for checking in. We'll see you on the next one.


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