Is Consumer Spending Hurting From More Than Bad Weather?

Money, Spending, Consumers

The weather may have improved across much of the United States last week, but retail sales did not. Following the release of January’s retail sales figure from the Department of Commerce on February 14, the concern was that the frigid weather experienced by much of the country that month depressed consumer spending. Retail sales totaled $427.8 billion last month, a decline 0.4 percent, while December’s sales figure was downwardly revised from 0.2 percent gain to a 0.1 percent drop, making January the second consecutive month of negative growth. But while many economists have cited the poor weather as the reason for the low spending numbers, Customer Growth Partners Chief Executive Officer Craig Johnson told Forbes that sales were weak, “and not just due to weather.” In fact, January produced “the worst year-over-year growth since 2009,” when the United States economy was in recession.

In other words, both data from weekly measures of U.S. retail sales and the comments of retail industry analysts suggest that underlying economic problems — and not merely harsh winter temperatures — are the source of retail troubles. Early last year, it became clear that American consumers were keeping their purchases limited to immediate necessities as confidence in the economy, and the economy’s ability to created enough jobs to fill the gap left by the recession remained weak. While the overall picture of consumer spending has been one of improvement, a closer view reveals more conflicting indicators about the health of the average American consumer, especially as stagnant wages continue to impact the spending power of lower-wage earners.

With worrying signals about near-term consumer spending patterns clouding the outlook for businesses and the recent weakness in job creation, it is no surprise that the Conference Board reported that consumer confidence in the United States slipped to 78.1 in February from January’s 79.4.

Snapshots of retail sales compiled by the industry trade groups — the International Council of Shopping Centers and Johnson Redbook — have indicated that consumer spending has been weak throughout the month of February. A January decrease is consumer spending is by no means a surprise; shoppers often decrease expenditures following the holiday season. But both the same-store sales index compiled by ICSC with Goldman Sachs and the Johnson Redbook index showed that retail sales numbers have not yet improved from January’s lows.

For the week ended February 22, the same-store sales indices reflected ongoing weakness.

ICSCfeb25

The ICSC-Goldman Sachs index — one of the most timely indicators of consumer spending — has recorded extremely weak readings. Early in the month, year-over-year same-store sales growth hit a recovery low of 0.0 percent. That measure has rebounded to some degree, but it has yet to post strong readings consecutively. On a year-over-year basis, same-store sales growth lost ground, expanding at a 1.4 percent rate after the previous week’s 2.1 percent rate of expansion. The index dropped 0.6 percent on a weekly basis, a significant reversal from the 2.5 percent gain recorded in the previous week.

“Temperatures turned warmer from coast to coast over the past week, but sales remained subdued as consumers enjoyed outside activities rather than shopping,” ICSC Chief Economist Michael Niemira explained in a Tuesday press release. “Despite the broad based softness, some segments — such as wholesale clubs, specialty retail, and furniture seemed to get a lift over the past week according to the ICSC-GS consumer tracking survey,” he added.

Redbookfeb25

Johnson Redbook’s weekly reading also inched lower. The index has expanded 2.9 percent over the past 12 months, which compares with the previous week’s 3.2 percent rate of growth. In addition, Redbook’s monthly comparison improved, contracting at a 1.3 percent rate following the previous week’s 1.2 percent rate of contraction.

According to economist Robert Reich — University of California, Berkeley professor and a former secretary of labor — the problems is that American lawmakers have forgotten an important lesson learned in the 30 years following World War II. During that time period, the nation learned that, “Broadly shared prosperity isn’t just compatible with a healthy economy. It’s essential to it,” he wrote in an essay published February 13 in the Detroit Free Press.

“America’s real job creators are consumers,” Reich wrote. “If average people don’t have decent wages, there can be no real recovery and no sustained growth. In those years [following World War II], business boomed because American workers were getting raises and had enough purchasing power to buy what expanding businesses had to offer,” he continued. “Between 1946 and 1974, the economy grew faster than it has grown since, on average, because the nation was creating the largest middle class in history. The overall size of the economy doubled, as did the earnings of almost everyone. CEOs rarely took home more than 40 times the average worker’s wage, yet they were riding high.”

But times have changed; in 2013, for the fourth consecutive year, the real median weekly earnings for full-time workers fell slightly, while corporate profits soared. In the third-quarter of last year, the most recently available data, corporate profits accounted for 14.6 percent of national income. Except for the last quarter of 2011, it was the highest share recorded in any quarter since 1947, when economists began tracking that data. It is not unnatural for corporate profits to increase in advance of wages, but the growth disparity between profits and earnings is by no means a new trend; it is 55 months old, meaning it is middle-aged given that the average lifespan of the past five economic expansions is 76 months.

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