Retail Sales Remain Strong but Showing Inflation Toll
Last week the new commerce department numbers came out for retail sales and—no big surprise—rising inflation appears to be taking a slight edge off retail sales numbers. March retail sales increased 0.5% over February totals, reflecting a slight slowdown over the 0.8% monthly growth rate previously posted. However, this is the second month in a row where monthly gains have fallen.
The annual comparisons remain in what would normally be considered a strong growth territory. Year-over-year, March 2022 sales increased 6.9% over the same period in 2021. But keep in mind that the average annual gain over the preceding 12 months was firmly in the double-digit territory at 21.6%. Remember, in the 20 years before the pandemic this number averaged 3.6%. And, if you compare March 2022 sales to the last month unaffected by the pandemic (February 2020), the actual dollar amount of retail sales transacted is up a whopping 38.6%.
My take is that we have passed the highwater mark of retail sales gains that were fueled by (1) the disparate economic impact of the pandemic, (2) massive amounts of governmental aid, and (3) the shift in spending towards goods away from services. Though wage inflation is driving the highest gains American workers have seen in a couple of decades (in the 6% annual range), overall inflation is taking back even more (the consumer price index is in the mid-8% range and moving up).
Perhaps the most telling indicator is that sales for gasoline stations were up 37.0% on an annual basis, making this the strongest retail category for growth, by far. By the way, when you take gasoline out of the mix, March retail sales fell 0.3% monthly. They remain up 4.4% annually and still reflect a robust 24.3% improvement from before the pandemic (February 2020), but the post-Covid spending spree on goods is starting to come back to earth. Meanwhile, increases in US oil production and 180 million barrels of oil from the US strategic reserve (over six months), has yet to send oil prices backwards in a substantial way. The long and short of it is that gas prices are going to continue to cut into consumer spending elsewhere and though there have been some slight signs of stabilization over the past week, pricing is extremely likely to climb even higher entering the summer months.
The good news for retail landlords and developers is that we continue to see retailers and restaurant chains in aggressive growth mode, though I suspect some aggressive growth plans currently in place (especially among restaurant users) may be adjusted downward somewhat over the next few months simply because the historical trend has been rising gas prices often take their first bite out of discretionary spending eating out. This is not to say I see anything close to a reversal… more like retail growth plans for chains moving from being hyper-aggressive to just aggressive soon…
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