By all accounts, Holiday 2021 should be fairly robust as most projections expect a year-over-year increase as high as 10.5 percent—but that was before Wednesday’s report from the Bureau of labor Statistics that inflation is running at a 31-year high of 6.2 percent.
“NRF is forecasting significant growth on a massive holiday season in the face of tremendous statistical problems—inventory in the billions of dollars in transit that is yet to reach warehouses and in warehouses [where it is] sitting waiting to be sold,” John Kernan, retail and softlines analyst at Cowen & Co., said on Wednesday at a Retail Marketing Society webinar. NRF, a retail trade group, is projecting a growth rate for holiday’s retail sales at 8.5 percent to 10.5 percent even with product delays and port problems plaguing the supply chain.
Kernan said retail sales growth this year has been “phenomenal,” noting that massive consumer stimulus and government support was likely driving the uptick in sales. But he also spoke about other rising costs, such as those connected with the labor shortage.
“We actually walked into a Ross Store in Reston (Virginia) where they are offering $1,000 signing bonuses to the cashiers,” Kernan said, noting rising store labor costs.
And it isn’t just retailers facing higher costs. Consumers are now feeling some pain too.
E&Y consumer retail leader Jeff Orschell said to keep an eye on energy and natural gas. “Natural gas one day went up 10 percent in the U.S., and there’s a natural gas shortage in the U.K.,” Orschell said, adding that there’s little certainty about the energy outlook.
“Natural gas is a key ingredient used to make [nitrogen-based] fertilizers for a range of crops, and it is one of the preferred methods to produce electricity in the U.S. Rising costs will have an impact on the food that we eat and the clothing that we wear,” Orshcell said.
For now, consumer sentiment is tracking down 13.1 percent in November, according to the latest survey from the University of Michigan’s (UofM) Index of Consumer Sentiment. The Index is now 66.8, down from 71.7 in October, and it fell from 76.9 in November 2020.
“Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” Richard Curtin, UofM’s Surveys of Consumers chief economist, said.
UofM’s latest survey indicates that one-in-four consumers cited inflationary reductions in their living standards in November, with lower income and older consumers voicing the greatest impact.
Consumer sentiment has seen some ups and downs over the past few months, mostly due to spikes in Covid-19 cases and the end of the federal government’s stimulus programs. In the UofM November survey, the Current Economic Conditions component fell 5.8 precent and the Index of Consumer Expectations fell 7.5 percent.
According to economists from Wells Fargo, it appears that “consumers see that the writing is on the wall as far as climbing prices in the next year or so.” They also pointed to the harsh reality setting in that “even with recent gains in wages, soaring prices are going to to be hard to keep up with.”
So far, businesses have been able to manage their profits by passing higher input costs along to consumers, but the Wells Fargo economic team notes that this could become “more challenging the longer price pressures last, and businesses may soon be met with resistance given the pessimistic move in consumers’ view of their household finances.”
They note that buying conditions for major household items, such as vehicles and homes, have moved lower in recent months. And while consumers have started transitioning from buying goods to services, the latest perceptions by consumers could be concerning in terms of their outlook.
“Particularly so, since these consumers’ views on pricing seem to be really setting in just ahead of the holiday shopping season,” the Wells Fargo economists said.