Cautious Consumer Spending May Have Impact on Supply Chains

August retail sales showed growth at a time when consumers are still being cautious with discretionary spending, according to data from the United States Department of Commerce and the National Retail Federation.

Commerce reported that August retail sales at $406.7 billion were up 0.9 percent compared to July and up 4.7 percent annually. This represents the largest monthly gain in six months, according to Commerce data. Total sales for the June through August period were up 4.0 percent annually.

The NRF reported that August retail sales, which exclude autos, gas stations, and restaurants, were up 0.2 percent on a seasonally-adjusted basis from July and up 3.8 percent on an unadjusted basis annually.

“While retailers continue to witness sustained sales growth, consumers remain cautious about their discretionary expenditures,” NRF Chief Economist Jack Kleinhenz said in a statement. “Consumers have carried much of the growth during the economic recovery, despite high food and gas costs. Though the economy isn’t backsliding, growth continues to be a sore point.”

On top of flattish economic growth, the possibility of an East and Gulf Coast ports strike, due to an ongoing stalemate between the International Longshoremen Association and the United States Maritime Alliance over a new labor contract remains a possibility, with a September 30 deadline looming. The NRF and other concerns have stated that should a strike occur it could throw a wrench in supply chain and logistics planning for retailers with holiday shopping season quickly approaching.

There are other concerns, too, on the economic front in the form of high unemployment, slowing manufacturing growth, lower consumer confidence, and low housing prices, among others.

Earlier this week, UPS CEO Scott Davis said the nation’s economy is being held back by its debt load and the uncertainty of fiscal policy and called on leaders in Washington, D.C., to prepare a bipartisan debt reduction plan by January.

As Logistics Management —a sister publication— has reported, retail sales largely show slow and incremental growth, while continued growth is needed over a longer period, as consumer spending accounts for roughly 70 percent of U.S. economic activity. And while retail growth is relatively slow still, signals remain intact that the economy is showing some signs of recovery, with consumer confidence on the upswing to a large degree declines in gasoline prices over the last two months.

The continuing trend of slight or flat sequential retail sales increases remains largely intact due to fairly even retail spending at a time when retailers remain cautious on the inventory planning side and postponing commitments until the until the economic outlook becomes clearer, while they are risking stock outages by having very lean inventories.

Charles W. “Chuck” Clowdis, Jr., Managing Director-Transportation Advisory Services, at IHS Global Insight, explained that depending upon which indicators you follow, this year’s Back-to-School Season was less robust than expected.

“If school clothing and supplies purchases were down, there would still have to be other commodities that slowed in August,” he said. “With unemployment still hovering over 8 percent and real unemployment well in to the double digits, workers appear to be paying-down their debt and attempting to save more. We hope cautious optimism is emerging…even in a very small, albeit, positive direction.”