Despite high inflation, rising interest rates, and global unrest, the consumer is resilient.
By Jonathan Silver, CEO of Affinity Solutions
February presented a fascinating contradiction in consumer behavior. Consumer sentiment, having recently reached a peak of a 2.5 year high, dipped somewhat by 2.7% to 76.9 from January’s 79. In this month’s CNBC/NRF Retail Monitor, powered by Affinity Solutions, we saw a robust year-over-year increase of 4.35% in total retail sales in February 2024. When adjusted for seasonal fluctuations, monthly sales demonstrated further growth, rising by 1.06% compared to January. This divergence suggests that consumer confidence may no longer directly influence spending patterns, highlighting a disconnect between stated sentiments and actual purchasing behavior. Perhaps, the rumblings of economic wariness have yet to reach Main Street.
Smart Speakers over Sofas: Consumer Prioritize Tech over Furniture Upgrades
Durable goods, which includes Furniture, Electronics, Appliances, and Building Supplies, is often viewed as a bellwether of the economy, and we’re starting to see signs of life after a long period of decline post pandemic.
For example, the electronics & appliances category grew 1.12% year-over-year. Conversely, furniture and home furnishings saw the second largest year-over-year decrease across all categories at a 1.56% drop. This variance suggests a potential shift in spending habits. Perhaps, with pandemic restrictions lifted, consumers are prioritizing upgrades to their technology and appliances, reflecting a renewed focus on entertainment and essential functions within the home. At the same time, furniture purchases have been experiencing a slowdown due to the possible saturation of furniture purchases during the stay-at-home pandemic period.
Convenience Reigns Supreme: Online Retail Surges While Returns are Reconsidered
Non-store retail outlets, including giants like Amazon, continue to dominate consumer spend, registering a sizable 18% year-over-year growth. This exceptional continued growth of this category highlights the ongoing preference for convenience among consumers.
Perks like free shipping and easy returns have made it easy for consumers to choose online brands. However, that might change as some of these companies are starting to charge for shipping and returns, citing their bottom lines. According to the NRF, customers sent back nearly 17% of the total merchandise they purchased in 2022, totaling $816 billion. That figure was up from 8% in 2019. Alternatively, we could see retailers trying to offset those costs through memberships. For example, Target just announced its going to launch Circle 360, a paid membership tier with unlimited same-day delivery.
Wellness and Hobbies Boom as Consumer Prioritize Self-Care
According to McKinsey, the estimated U.S. spend on wellness products and services is over $450 billion, rising at more than 5% annually. Our data shows it’s actually growing more than that: February saw 11.2% year-over-year growth, the third highest growth across categories. Additionally, the Sporting Goods, Hobby, Music & Book Stores category was particularly strong in February, up 2.3% seasonally adjusted month-over-month, and up 13.7% unadjusted year-over-year. The growth in both of these categories can be attributed to the post pandemic trend of consumers proactively focusing on their health and self-care, investing more in themselves, their hobbies, and activities that bring them personal fulfillment.
From Capitol Hill to Cash Register: Policy Impact on Consumer Spending
Today, we’re seeing spending among lower income households, representing about 50% of consumer spending overall, continue to outperform, a clear sign of a healthy economy. And policy proposals from the Biden administration could potentially increase that.
Biden’s tax plan, which would shift the tax burden from lower income households to those with higher income, would likely stimulate the economy. We saw a similar dynamic when our data was used by the White House and Congress to determine the income cutoffs for the stimulus checks. Households with incomes over $78K put the money in the bank and didn’t spend it; while those making under $78K spent it quickly. With regard to age or generation, Gen Zers are currently outspending other age groups. Biden’s proposed Child Care Tax Credit would provide money back to Gen Zers and Millennials that they can use to spend in other areas.
Conclusion
In February, the consumer landscape presented an interesting conundrum. Despite a decline in consumer sentiment, retail sales remained robust across all sectors. One possible explanation is that economic uncertainties have not yet fully impacted consumer behavior, or perhaps individuals are turning to self-care and technological upgrades as a response to the uncomfortable economic climate. The future of this trend is uncertain, but one thing is clear: Consumer behavior is complex and consistently evolving. With $2 trillion more in checking and savings accounts than pre-pandemic levels, which is a significant driver of consumer spending, the economic outlook appears to be promising.
