The latest government data confirm what apparel retailers have been experiencing since the beginning of January: Consumer spending remains soft.
According to the Bureau of Economic Analysis, consumer spending was weaker than what economists expected for February — posting a 0.1 percent increase, which followed two months of declines. Real personal spending (adjusted for inflation) clocked a 0.1 percent decline. Lousy weather and gas prices that have inched up were to blame, said analysts and economists.
Meanwhile, personal income and disposable income both had gains of 0.4 percent while savings, wages and salaries all experienced increases. The savings rate in particular saw a considerable rise as it jumped to 5.8 percent in February, which is up from 5.5 percent in January and well above November’s rate of 4.4 percent.
Wages and salaries could be better, though, said National Retail Federation chief economist Jack Kleinhenz in an interview. “Salaries and wages are not growing as fast as it needs to be,” he said adding that the outlook is still positive. “The numbers continue to show that there’s spending power out there. And they are spending, but not on goods.”
Instead, Kleinhenz and others say consumers are doling out hard-earned dollars at restaurants and other services. A research note from Telsey Advisory Group said “retailers and real estate developers are continually being asked about the benefit of lower gas prices on traffic and sales. Overwhelmingly, the response is that food/restaurants and grocery sales are seeing the benefit, but not yet soft or hard goods.”
“So there is a willingness to spend,” Kleinhenz said. “But getting them to spend money [on goods] is the issue.” He said the spending trends might also reflect deflationary pricing on durable and nondurable goods. Although overall inflation is ticking up, price points on apparel, electronics, home furnishings and other segments are lower than in prior years.
IHS Global Insight economist Chris Christopher said in his research note that “consumer spending was weak due to unseasonably colder winter weather, increasing gasoline prices, and lower consumer confidence.”
“The first quarter is turning out to be a downer on the consumer-spending front, especially since the last quarter of 2014 was relatively strong,” Christopher said in the report. “It is obvious that while the winter weather has kept many shoppers away from the mall, most of the so-called gasoline dividend is being pocketed or used to pay down debt.”
Kleinhenz and Christopher noted that there is strong momentum in the market and that there is pent-up spending demand in the consumer ranks. “We expect consumers to come out swinging in March, since February had the double whammy of increasing pump prices and bad weather effects,” Christopher said. “Our first-quarter real consumer spending growth outlook is now standing somewhere between 2 percent and 2.5 percent; however, the second and third quarters are likely to be significantly stronger as the weather heats things up a bit.”
Some of the wild cards impacting consumer spending include rising fuel prices. If lower prices on gas triggered spending on services, has the window closed for apparel retailers as fuel costs rise? And what about shifts to other goods and services?
According to the Bureau of Labor Statistics’ most recent, revised report on consumer expenditures, spending on apparel nosedived in 2013 with a 7.6 percent decline. From the report, released earlier this month, the segments that have shown increases include: rented dwellings, up 4.3 percent; housekeeping supplies, up 5.7 percent; and “other” vehicle expenses, which rose 3.8 percent.
Housing and transportation continue to be the biggest segments of consumer expenditures, collectively garnering more than 50 percent of people’s household budgets.