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Wednesday, August 17, 2022

Americans are spending despite their concerns about the economy

Consumers in the United States are negative about the economy, concerned about inflation, and concerned about the direction of the nation in general.

Shopping for gadgets and home-improvement projects drove retail sales to an all-time high in October, even before inflation was taken into consideration. Profits at major retailers such as Walmart have been quite good. Wall Street analysts foresee a Christmas season that will be less like the pandemic-constrained 2020 season and more like the one that occurred in 2019, when a healthy labour market helped to fuel robust sales.

Consistently strong consumer spending indicates the durability of the United States economy after a year and a half of economic upheavals, as well as the efficacy of the government’s economic response in shielding many households from the effects of the recession. Households together have billions of dollars more in accumulated savings than they had before to the financial crisis.

However, excessive spending, especially on commodities rather than services, is adding to the economy’s troubles by aggravating supply-chain snarls and shipping delays, which are already severe. As a result, prices are rising as a result of this: Inflation reached its highest annual pace in more than three decades in October, according to the Bureau of Labor Statistics.

It seems that these difficulties are having minimal effect on Walmart and Home Depot, which both announced quarterly results on Tuesday that above Wall Street projections.

Walmart has been chartering ships in recent months in order to avoid the shipping bottleneck, and the company is attempting to add 150,000 employees before the Christmas season. The firm said on Tuesday that its inventory in the United States was 11.5 percent greater coming into the Christmas season this year than it was the previous year.

Consumers spent a record $638 million at shops and restaurants in October, according to the Commerce Department. This is an increase of 1.7 percent over September and a 21 percent increase over pre-epidemic spending levels. It was the highest one-month rise since March, when the last batch of government stimulus cheques helped to boost consumer spending and the stock market.

Some of the additional expenditure is being eaten away by inflation. Sales at fuel stations increased by over 47 percent in October compared to the same month the previous year, owing to an increase in gas prices of approximately the same amount during that period. However, sales are increasing at a higher rate than prices in general: Retail sales increased by 0.7 percent in October compared to the previous month and by 9.5 percent compared to the same month a year earlier, after adjusting for inflation.

Krizzia Soto-Villanueva, of Burlington, Vermont, said that she had been engaged in “retail therapy,” or shopping to make herself feel better, after realising that she had spent the previous 18 months at home and had not spent much money on her own happiness. Having begun a PhD programme at the University of Vermont in September as a resident assistant and determined to utilise her money in the following months to make up for what she had not spent before, she purchased clothing and hiking equipment.

Increased inflation is partially a consequence of consumer purchasing patterns shifting as a result of the influenza outbreak. People spent more time at home last year, which resulted in an increase in spending on things ranging from groceries to automobiles to home gym equipment. The result was increased pressure on supply networks already under strain as a result of port and factory closures throughout the globe, resulting in product shortages as well as higher pricing.

Economists, including officials at the Federal Reserve, predicted that consumer spending on products would decline as the epidemic receded. That hasn’t occurred yet, at least not yet. The figures on retail sales revealed that both online and in-person purchasing were increasing.

It’s possible that strong October sales are a result of an early start to the Christmas shopping season. L.L. Bean posted a banner to their website in mid-September, alerting consumers about Christmas shipping delays and shortages, and encouraged them to begin purchasing as soon as possible. Best Buy’s Black Friday offers were available from October 19 to October 22, more than a week before Halloween. On October 31, Target began offering “early Black Friday” promotions.

The good news is that there are some indications that shortages are starting to alleviate, in part because merchants bought early this year as well as consumers. While holiday orders typically begin arriving at the Port of Los Angeles around the end of August to the beginning of September, Gene Seroka, executive director of the port, stated on Tuesday that they began arriving as early as June this year. Seroka was speaking at an event with Transportation Secretary Pete Buttigieg.

Ahead of the Christmas shopping season, economists predicted that customers would spend less in November and December if they just got a head start. However, most forecasts believe that expenditure will continue to be robust as a result of the improving public health picture and the overall strength of the United States economy.

Tom Nolan, the chief executive of Kendra Scott, a fashion jewellery company with 119 stores, claimed that the company’s sales were up “materially” over the previous year and that he anticipated the trend to continue until the end of the year. Kendra Scott is a retailer of fashion jewellery.

Expenditures on services, especially in-person, discretionary activities such as travel, concerts, and gym classes, were down last year and have just slowly begun to recover. A coronavirus strain known as delta has spread across the United States, slowing the recovery of the service sector: Restaurant sales were flat in October, and they have been essentially flat since the beginning of the year.

However, Mr. Shepherdson believes that, barring a resurgence in coronavirus cases, expenditure on services would increase when Americans resume their holiday vacation. People may claim to be gloomy in polls, he said, but their spending sends a different message to the financial world.

David Faber
I am a Business Journalist of The National Era
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