Economic data and cloudy fourth quarter retail forecast

They say numbers don’t lie, but they can mislead. Try to build a solid forecast for the fourth quarter economic outlook about to begin, and things clearly get fuzzy.

Former CEO of Saks Fifth Avenue and MasterCard senior advisor Steve Sadove told PYMNTS’ Karen Webster that depending on where you look and how you do the math, consumers are actually in decent shape for the holiday shopping season.

Except where they are not.

“You’re hooked in the details if you just look at it month over month or even month over last year, if you just want to look at this performance year over year,” he said. “Having said that, the low-end consumer is feeling the pain tremendously with fuel prices, with rents, some of the higher interest rates are just starting to hit people.

“The savings rate has gone down. Even the 7% holiday forecast, which is a healthy number, is not adjusted for inflation.

In other words, that’s the same as if sales were up more than 11% in August year-over-year 2021 over 2022, and Mastercard SpendingPulse data forecasts 7% growth for the holidays – not adjusted for inflation – “it’s a slowdown”.

It just goes to show how important comparisons are, but they also muddy the waters, because comparing 2020 and 2021 to any year before or after will result in weird swings that may or may not continue.

Sadove and Webster agreed that it’s a bit misleading to watch September 13 report from the US Bureau of Labor Statistics. It showed that the annual inflation rate in the United States fell for the second consecutive month in August to 8.3%, the lowest figure in six months and down from 8.5% in July and to 9.1% in June, which was the highest figures in four decades.

“I just did a little back of the envelope [math] and took the August 2022 numbers and compared them to August 2019 for each category,” he said. “You’ve had all these big jumps in certain categories in 2021 and then they go down, and if you look at the world on a 22-to-19 basis and you look at it across all categories, you actually see it’s almost the same thing.”

See also: Inflation higher than expected; Food prices up 11.4% from last year

The 3-year battery view

Sadove is obsessed with the longer term view and what it says about the difficulty of making economic forecasts for the fourth quarter and 2023 at this time of transition in the US and global economies.

Illustrating the vagueness, he told Webster: “Just pulling a few numbers from 22 to 19, overall retail was up 22%. This gives you an idea of ​​the overall consumer [standing] on a three-year basis. »

Noting that Mastercard SpendingPulse saw apparel sales up 22%, tracking overall retail, and grocery and home goods sales up 24%, he said. “With all the machinations we talked about, everything went home, people only bought certain kinds of clothes. Now you see that department stores are up 13%. So on a three-year stack, yes, the department stores have come back, but on a three-year stack, they’re actually below the growth you’re seeing.

Similarly, on e-commerce, it’s the three-year view that he finds fascinating and perhaps more telling, as numbers from the depths of pandemic years can skew the numbers.

Webster noted that consumers spooked by empty shelves and endless supply chain information stocked up in 2021 in particular, and with their purchasing power now diminished by inflation, they simply didn’t not the spending available to move 2022 forward one way or another.

Sadove countered, “Except the clothes are holding up reasonably well if you look at the numbers year over year, and even if you look at them on a three-year basis. Part of it has to do with spending trends, because if you talk to any of the retailers, it’s slowing down, but it’s still growing in high-end clothing because people want that fashion. What doesn’t sell is a lot of cases where we’re dealing with markdowns because there’s so much inventory in the system.

Learn more: New survey shows consumers less optimistic than the Fed on inflation control

Even so, the latest PYMNTS consumer and inflation study shows that 70% of all consumers, including affluent luxury shoppers, are making adjustments in how they spend their money, spending less in many categories since the cost of buying the essentials – food and gas – has skyrocketed.

Buyer’s mind

Webster noted that this type of economic climate favors discount chains as consumers negotiate and turn to alternatives for staples, including Amazon. She said it’s important not to underestimate Amazon’s quiet rise in the share of consumer spending it’s capturing in apparel and accessories — around 11% now compared to Walmart’s 5%, according to data. PYMNTS data.

A lot of it comes down to mindset, Sadove said, drawing another popular comparison: the housing crash of 2008 versus the COVID pandemic and subsequent wave of inflation.

“I ran Saks [in 2008] and was at dinner with the CEO of another major department store chain the night Lehman went bankrupt,” he said. “All of a sudden, 25% of our stuff disappeared overnight, not because people were poor, but because of the psychological impact of uncertainty about where the world is going.”

All of a sudden, that extra pair of Manolos didn’t seem so essential anymore.

Read more: Why retailers should worry about inflation but fear the wealth effect

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