The headlines read something like “April retail sales flat, missing expectations.” Indeed, Americans spent 0.0% more in April (seasonally adjusted) than we did in March. Compared to this time last year, retail sales in April climbed 37.2%. Both of these numbers mean very little because of their respective wacky denominators.
Retail sales came in flat month-over-month in April, but after a frenetic March during which sales popped 10.7% amid surging pandemic optimism and a fresh round of stimulus. In April last year, we were in the depths of the pandemic with lockdowns across the country closing nearly two-thirds of all retail shops. In addition, many consumers found themselves out of work and this, added to the general cluelessness at the time, severely suppressed spending on nonessentials. With that comp, April 2021 was always going to be strong.
The two-year comp brings clarity. According to the Department of Commerce, retail sales rose 22.2% over April 2019, with e-commerce sales up 39.7%.
Looking back to 2019, April’s report was very healthy across all sectors. Department stores have been in decline for more than a decade, and the past 24 months have seen a swath of major department store closures. Given this and the state of the economic recovery, the labor market, and current consumer sentiment, being down single digits to 2019 is promising.
Turning to Bank of America’s more up-to-date consumer spending reports, the momentum has flowed into May. According to BofA, total card spending rose 21% on a two-year basis for the seven days ending May 8. Smoothing through the weekly gyrations, total card spending has been running at a roughly 20% pace over a two-year period since mid-April. This is considerably above the average pre-pandemic two-year growth rate of about 8%.
What’s it mean for freight markets? BofA data indicates spending on durable goods (furniture, home improvement and electronics) has remained extraordinarily robust, growing at a nearly 40% two-year growth rate. The stimulus provided a jolt in spending to a peak of a 64% two-year growth rate in mid-March but the rate of growth has since stabilized. On the other end, spending on discretionary services — airlines, lodging, leisure and restaurants — is up only slightly on a two-year basis.
This means that the consumption basket between goods and services spending has been largely stable for the past four weeks.
This won’t continue forever, and I’ll be monitoring it closely because the mix of goods to services is equally important to growth for freight volumes. The $64,000 question everyone is trying to answer is when the reversion to services will be. The longer Americans spend on goods at this level, the longer I believe the shift will be so gradual I’ll get bored of reporting on it. The fact is that despite a slowing labor recovery and retreating government stimulus, consumers are in a good spot. But April’s retail sales and jobs reports highlight that it’s going to be a bumpy ride out of this pandemic.
However, the freight industry is insulated from the recovery volatility. The Department of Commerce’s March inventory report gave further evidence, beyond goods demand, that freight volumes have a lot more room to run. In March, total business inventories ticked up .3%, but sales rose double digits, bringing the inventory-to-sales ratio down to 1.23. That’s down from 1.30 in February and down from a decade low in January. In fact, March’s print is the lowest inventory-to-sales ratio in the FRED database dating back to 1992.
TL;DR — Don’t let that flat top-line number scare you. After torrid growth in March, a flat monthly print means little when the two-year comps remain so strong. There are potential headwinds ahead, namely inflationary fears. Americans’ fear of rising prices is weighing on consumer sentiment, but the extremely high savings rate should offset some negative spending adjustments.
The reversion to services has not come at the detriment of durable goods spending. Over the past four weeks, the mix of durable goods-to-services spending has remained stable. However, for freight markets, even when the reversion occurs, the all-time low inventory-to-sales ratio suggests months, potentially years, of inventory restocking ahead.
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