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Update on Retail Sector Trends

September 11, 2020

Trends in the retail sector are looking positive – why is that important for the US economy? Catch our newest TrendsTalk episode with ITR Senior Forecaster Connor Lokar to learn more.


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Transcript by Rev

Hello, everyone, and welcome to this latest ITR Economics Trends talk. I am Connor Lokar, senior forecaster on the ITR team. And today we're doing a retail roundup of sorts, checking in on the latest retail trends and really hammering home, number one, how positive they are, but also why that's relevant, why that is meaningful for the U.S. economy as we head into the end of this year.

Now, retail numbers in the last couple of months of data that we have through June and July have posted a borderline remarkable comeback just emerging from the absolute abyss that was the spring shutdown period from March, April, and May. So total non-inflation adjusted retail numbers are actually up month-over-month in June and July, 2020. They were up 3.4% in the month of June and 3.8% in the month of July. And I want to articulate up month-over-month. I'm not just saying that they're just better than the April and May numbers, they're actually better than the same month a year ago, which is astonishing and incredibly positive for the U.S. economy.

I want to actually take that a step further because given that no one is driving, I don't think it would be necessarily cherry picking if I took a look at, specifically, retail sales excluding gas stations because remote life is taking a pretty big bite out of the apple in terms of overall driving volume and, obviously, gasoline consumption, which is damaging that particular component of the overall retail pie.

When I look through that lens, the data is actually more impressive. The respective month-over-month increases jumped to about 5.5% and 5.6% month-over-month in July. And that is, as I said again, that is month-over-month growth, it is not just month to month improvement at this point. We're actually exceeding the pace and trend set at this time last year, obviously in a non-pandemic environment. So that's really a positive development.

I think what's so fascinating about these shutdowns is that the consumers, they actually did spend where they could in the March and April timeframe. If we look at the general merchandisers, the Walmarts of the world, grocers, your healthcare stores, your pharmacies, your CVS, Walgreens of the world. Home improvement, home improvement hardware stores, they were essential, so they were one of the few retail avenues still open, and they crushed it and still are crushing it. I think least surprisingly as beer, wine, and liquor sales are soaring to the heavens as, I think, all of us tried to self-medicate our way through those locked down months and weeks in late March and April.

So now in this, relatively speaking, post-shutdown period, we are seeing bounce backs really across all retail segments, and it's to varying degrees. Some are just recovering, so the bleeding is slowing down, if you will, but still not necessarily where the trend was a year prior as we look at apparel merchandisers or automotive sales are still having some issues compared to your prior levels. But others are actually in line with that overall retail trend, actually exceeding the pace set last year in the last 60 days or so of data. So we would expect that the retail landscape for the rest of this year is still likely to be a story of the haves and the have nots where some segments are still benefiting from the current, what I'll call environmental dynamic of COVID-19, where others are still struggling before we see a more broad-based rebound in their overall numbers next year, as we get into 2021.

Given that we we do have data on over 60 different individual retail sub-segments, I don't really have time to go through each and every one. But those of you that are Datacast subscribers, you have access to that information and you can compare your individual business to those sub-segments of interest. But I think what's interesting is the consumer's conditioned to consume. And that's why when we shut down and really narrowed the number of avenues that the consumer could do so with the closure of brick-and-mortar retail, of in-service dining establishment, we saw travel fall by the wayside. The consumer just couldn't spend, even if they wanted to. Those of us that wanted to in March, April timeframe, and just think about your own consumption patterns. It was grocery store for the most part, pharmacies and then trips to Home Depot, Lowe's, or wherever your preferred home improvement preference was, you couldn't really do a whole lot.

I emphasize this because I would presume that most of you listening are not direct B2C retailers and really selling directly to the consumer, but these positive numbers, and the negative numbers before them earlier this spring, they matter to you. That bottom of the funnel demand from the consumer, that's the fuel feeding the beast that is this U.S. Economic engine. It's not just here. Our demand and purchases here drive economic growth, not just in the United States, but for our North American partners to the north and south, Canada and Mexico, across the Atlantic and the Pacific as we look to our friends in Europe, as we look to our friends in Asia and Southeast Asia, Japan, China. China not so popular lately, but nonetheless, our demand is important, not just here, but the world over.

And that's really, precisely what made the shutdowns so economically damaging for the economy. Because at the end of the day here in the United States, personal consumption drives roughly two thirds of the U.S. economy. So while some of you may view it as just rampant, shallow consumerism, our buying of stuff, our purchases at the end of the day, are what is the grease keeping those economic gears turning for the economy here, not just in the United States, but we also drive demand and employment growth in nations abroad. Which is why the rebound is so important, so exciting for us at ITR. And we're thrilled with these numbers were high-fiving in the halls here at ITR at some of the positive retail numbers that we've seen in the last couple of months.

It would appear that as we look at the CARES Act, other stimulus, it did have the intended effect of mitigating, not just mitigating the damage to disposable personal income, it actually increased overall disposable personal income from the prior trend in 2019 in the first two or three months of 2020, which is remarkable. And it would appear, with the last couple of months, the consumers were reluctant at first. April, May, some soft numbers. But it would appear June, July and, presumably, in August, once we get that data, that the consumer is starting to let go of those dollars. They're starting to do with the government wanted them to do right away, and start pushing those dollars into the U.S. economy, and as they do that, they're stoking the flames that are building that economic growth.

For those of you that have caught a recent ITR presentation or webinar, you know that the retail trend, that's one of our pivotal stakes in the ground. And just really what's laying the foundation, not only for the ongoing economic recovery, but laying the foundation and the tracks for that really resounding macro economic rebound that we expect in 2021. So we are just thrilled with what we've seen lately. And the recent data really gives us reason to be encouraged. If we're encouraged here at ITR, you should be too. I think we'll all take the good news where we can get it these days. So thanks for checking in and I'll see you on the next one.


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