Despite High Inflation and Recession Fears, Consumer Spending Remains Strong
The retail sector is set to release its quarterly results, leading to intense speculation about the state of the consumer economy. Retailers like Walmart and Home Depot are expected to post substantial sales numbers, with analysts paying particular attention to consumer spending levels.
Torsen’s Lock of Apollo, a noted research firm, has taken an in-depth look at the consumer market and concluded that the consumer remains strong despite concerns over high inflation and the possibility of a recession. The report cites four main factors contributing to this resilience.
Consumer Spending on Experiences
The trend towards consumers prioritizing experiences over material goods has been evident for some time. This has only accelerated during the pandemic, as people have focused on activities and events that can be enjoyed safely. Spending on experiences has remained robust, contributing to overall consumer strength.
Robust Wage and Employment Growth
The job market has remained strong, with robust wage growth and a healthy employment rate. According to Lock of Apollo’s research, total employment is now 2.6 million jobs above February 2020. This has contributed to overall consumer confidence, despite the uncertainty of the current economic climate.
Excess Savings and High Stock Prices
The pandemic has led to many consumers accumulating excess savings, which has kept consumer spending levels strong. Additionally, the recent rise in stock prices has contributed to the overall wealth of consumers.
Increased Spending on Services
The services sector has seen a significant increase in spending, with a shift away from traditional retail categories. Lock of Apollo’s research shows that the services sector is making up more consumer spending, with expenditures on experiences remaining a key contributor.
Despite the strength of consumer spending, there are areas of weakness. Sales of furniture, electronics, and appliances have slowed, with financing requirements cited as a critical reason. Lock of Apollo’s research also highlights a slowdown in electronics sales at Walmart, which could be a bellwether for the broader retail sector.
Overall, the outlook for consumer spending remains positive, with consumer sentiment trending in the right direction across all income levels. It will be interesting to see how the retail sector performs, particularly as online spending becomes more prevalent and the economy emerges from the COVID-19 pandemic.
The consumer economy shows remarkable resilience despite concerns over high inflation and a possible recession. Consumers continue to prioritize experiences, while robust wage growth and employment levels, excess savings, and high stock prices contribute to overall consumer confidence. While there are areas of weakness, the overall outlook for consumer spending remains positive, with the potential for a shift toward online spending as the pandemic continues to shape the economy.