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Econometric Advisors' blog

Retailers thankful for a confident U.S. consumer

Dec 26, 2016, 14:37 PM by James Bohnaker

Concern about a slowdown in consumer spending can be put on the back burner, thanks to recently revised data from the BEA. The latest release shows personal consumption to have grown at an annualized rate of 2.8% in Q3, significantly improving on the initial estimate of 2.1%. The updated figure is slightly above the average since the beginning of 2015. There was also good news in an upward revision to income growth, which accords with the recent jump in wages.       

Consumers were apparently undeterred by uncertainty leading up to the election, and they remain unfazed by the results—at least in terms of their shopping habits. In November, consumer confidence hit its highest mark since 2007, according to a Conference Board survey. Meanwhile, stocks have rallied since the election, and consumers will feel some wealth effect from those equity gains if they stick. A steady upward trend in home prices should also help.  

No Spending Slump Here

PCE: Q3 avg ann change slightly above avg since 15Q1

Source: CBRE Econometric Advisors


Elevated consumer confidence bodes well for retailers’ holiday-season performance. Although it’s still too early to deem 2016 an outright success, initial sales numbers look promising for retailers as they embrace the online experience as a key component of their marketing strategies. According to Adobe, the five days from Thanksgiving to Cyber Monday saw online sales nearly 15% higher than the same period last year. That isn’t to say that everyone shopped on mobile devices from the comfort of their couches; mall traffic, in-store sales volumes, and conversion rates were reportedly higher as well.  

Warehouses are a universal winner this holiday season, thanks to the one-two punch of cyclically strong spending and structural changes in the way goods are distributed. Customers now demand that products arrive faster and from a greater variety of sources, necessitating the transformation of a supply chain that until recently has not been prepared for the tidal wave of e-commerce. Even the way we return items is changing—30% of goods bought online are shipped back, compared with 8% of those bought in stores. Retailers are focused on logistics more than ever before, given the major costs and opportunities that this new era presents. Those who get it right stand to win big with their customers and investors.

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