The Consumer is Looking Better

Posted by Richard on October 10, 2017

Kiplinger’s latest forecast on retail sales and consumer spending:


*2.1% pace in ’17, 2.4% in ’18


*Hiring pace should slow to 175K/month by end ’17


*10-year T-notes at 2.4% by end ’17


*2.0% in ’18, up from 1.4% in ’17


*Rising 3%-4% in ’17, after flat ’16


*Crude trading from $40 to $45 per barrel in December


*Existing-home sales up 3.5% in ’17


*Growing 3.5% in ’17 (excluding gas)


*Widening 4% in ’17, after nearly flat ’16

Retail sales for the year suddenly look better after a strong gain in July and upward revisions to May and June. Sales excluding gasoline in 2017 are likely to rise by 4.0%, up a bit from its 3.8% pace in 2016. And given very modest price growth, inflation-adjusted sales are actually doing pretty well, which is a good sign for GDP growth in the second half of the year.

An encouraging sign is that July was a good month for in-store sales after weakness in May and June. Department store sales have surprisingly managed to stay steady for the past nine months, marking the first time that the relentless eleven-year downtrend has been arrested. Although the respite is only temporary, a slowdown in the otherwise ceaseless decline would relieve some of the pressure on this sector to speed up store closures.

E-commerce sales will grow 14% this year, slightly less than the 15% gain in 2016. E-commerce has shown remarkably solid growth over the past seven years, and will account for 9% of all retail sales (13% of all goods sales) by the end of this year. In-store sales will show only modest 1.8% growth, though this is a slight pickup from last year’s 1.4% gain.

Building materials sales appear to be back on track after a puzzling slowdown earlier this year. They should have a strong year, mirroring the strength in housing construction in general. They are expected to grow 7.3% in 2017, up from 5.8% in 2016.

Restaurant sales are slowing to a more sustainable growth pace this year: 3.3%, down from 5.5% in 2016. Labor shortages will make expansion difficult for some chains, and higher minimum wage laws will boost menu prices. Plus, sales grew strongly for six years straight and are due for a breather.

By: David Payne, Staff Economist, Kiplinger