Exploring Retail Sales Data – A Key Indicator of U.S. Consumer Health
Photo Credit: Mike Petrucci, Unsplash
The U.S. consumer plays a vital role in the economy, accounting for almost two-thirds of U.S. GDP. For this reason, investors and economists pay close attention to consumers' financial health and activity. One consumer metric that investors track is the Johnson Redbook Index, which measures the percentage change in sales at stores that have been open for at least one year. The dataset is a proxy for consumer spending based on a sample of large U.S. retailers, including about 9,000 department, discount, and chain stores.
The chart below shows consumer spending steadily increasing during the last two decades, with notable exceptions in the early 2000s (U.S. Tech Bubble and 2001 recession), 2008 (Global Financial Crisis), and 2020 (COVID-19 Pandemic). The past few years show a pandemic-induced dip in 2020, followed by a 2021 spending spree fueled by stimulus checks, increased wages, and pent-up savings. However, consumer spending has steadily decreased since July 2022, with the Johnson Redbook Index experiencing a relatively rare year-over-year decline in July 2023.
Johnson Redbook Retail Sales Index (% Year-Over-Year)
The sales decline reinforces three themes we are tracking
The U.S. economy is returning to its pre-pandemic trend, with job growth slowing, manufacturing activity softening, and home sales declining.
Inflation pressures are easing after the CPI peaked at a 40-year high of 9% in June 2022. Since the Johnson Redbook Index is not adjusted for inflation, its 2021 growth and subsequent 2022 decline track inflation’s rise and fall.
Consumer spending is shifting from goods to services, such as travel, concerts, and dining out, as consumers make up for previously missed opportunities.
The Johnson Redbook Index’s focus on retailers means that it omits spending on services, further emphasizing the slowdown in spending on goods. With a modest year-over-year decline of -0.2%, consumer spending remains resilient despite higher interest rates and recessionary concerns. However, the decline adds to worries about the consumer’s strength. Recent data from the New York Fed showed that outstanding credit card balances reached a record high of $1 trillion in Q2 2023, signaling an increased reliance on credit cards. Additionally, personal savings accumulated during the pandemic are gradually shrinking. Despite these potential challenges, consumer sentiment is improving and sits near a 2-year high. As we move into the latter half of 2023, attention is focused on consumer behavior.
Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.
Our Insights
