Costco. Victoria’s Secret. Wet Seal. Saks. Kohl’s. That’s as varied a group of stores you can get. Yet, all four giant retail chains reported that in March their sales were better than expected. Some of the chains’ sales were far better than expected.
For example, analysts had expected sales at Costco’s outlets open at least a year to be up 7.4%. Instead Costco customers bought 13% more of the warehouse chain’s bulk goods than in March a year ago. Other stores that were expected to disappoint, ended up posting strong gains in sales. Sales at teen clothing store Wet Seal, for instance, were up 5%, instead of being dropped as analysts had expected.
What’s going on here? At the end of last year we saw a resurgence in consumer spending. But recently some have been worried that the American consumer was going back into hibernation. Especially, after last week’s report of a drop in consumer confidence. There were a number of reasons why consumers would have shopped less than usual in March – a cooler than expected Spring so far; high gas prices; a later than normal Easter, putting off holiday purchases. Overall, analysts were expecting that retail sales would drop 0.7% in March.
And yet, the retailers seemed to do much better than that. And none of of the reasons analyst fretted about seemed to stop the American consumer. Here’s why:
All this comes back to oil prices and inflation. For the past month or so, there has been a growing worry that inflation would slow the economy, namely consumers would have less money to spend on clothes and electronics with more of their money going towards food and gas. Indeed, US economists have recently been lower there GDP estimates because it appeared the US consumer was slowing down.
Yet, that doesn’t seem to be the case. At least not last month. Consumers were able to take higher gas prices in stride and still make it to the mall. What does this say about the economy?
First of all, it says that the US recovery continues at pace, and is stronger than most forecasters and analysts are giving it credit for. Second, it says that inflation worries are higher than they should be. What’s more, people’s expectations for what inflation will do to the economy seem to overly pessimistic. Inflation happens in every recovery. And indeed, inflation can be a good thing, getting people to go out and shop. If I think prices are going to always be falling, why not wait until the last possible moment to make my purchases. Instead inflation gets people to go out and shop now. And in fact in March we may have seen that inflation boost to sales. Consumers didn’t wait until the last weekend before Easter. Instead they bought in March, perhaps concerned that prices would rise, or at least not certain that they would fall. And in a way, that’s another important sign of confidence in the US economy.