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Latest retail sales data points to a soft landing
Date : 2023.11.25
Latest retail sales data points to a soft landing
The U.S. Census Bureau recently released its report on Advance Monthly Retail Sales for the month of October. Traditionally, the October version of the Retail Sales report garners some extra attention because it provides some early clues on how U.S. consumers are feeling as they enter the all-important holiday season.
I am even more intrigued than usual this year because of the other economic challenges with which we are currently engaged. These include persistent worries about inflation and sharply higher interest rates. But most important to me is that we are coming off a stunningly strong surge in consumer spending in Q3, which nobody expected.
I am inclined to believe we will experience a reversion to the mean, but I do not take anything for granted at this point.
I want to look at this data closely for a few months, if for no other reason than to assure myself I am not missing — to borrow a Star Wars metaphor — a "shift in the force."
According to the Census Bureau, U.S. retail sales were down 0.1 percent in October when compared with the previous month, and they increased 2.5 percent when compared with the total from October 2022. This data is not adjusted for inflation, so when you spitball a year-over-year inflation estimate of about 3 percent for October and apply it to the latest data, you come up with no real change in the total when compared with last year.
In other words, the total amount of retail sales activity in the U.S. as we start the fourth quarter of 2023 is showing no discernible difference from the previous month and no discernible difference from a year ago. To put it another way, we are gliding. That is exactly what the Fed hopes we continue to do for another few months because a controlled glide is just another way of saying soft landing.
On the rate of change chart, this glide path is a smooth, downward sloping line for a few more months. If all goes as planned, then this line will continue to descend down to somewhere around 2 percent before leveling off and then heading back up in the second half of 2024. I won"t get alarmed if it drops a bit further, but we do not want it to drop below zero for any sustained period.
Now I should offer a couple of caveats about the outlook for the remainder of this year and the beginning of 2024. First, the perception we are currently on a smooth glide path does not mean that a soft landing is guaranteed. A lot of economic variables must remain balanced and manageable for another six or seven months in order to pull this off. We may be off to a good start, but we have some distance to go.
Second, it is unlikely that all sectors of the economy will experience this process equally. Some segments and some companies will have to endure a great deal of stress, and there is a strong likelihood there will even be some high-profile crashes.
Like I said, there are no guarantees. We might be inclined to think of a soft landing as something trained pilots master and execute thousands of times a day without incident, and that might ultimately be the correct comparison for the overall U.S. economy in the coming months. Indeed, that seems like the most likely outcome. But I cannot totally rule out the possibility that a better comparison might be Jim Lovell and Apollo 13, or perhaps Sully Sullenberger and the Miracle on the Hudson. We just have to remain patient and adjust to what the data tells us.
As of now the data tells us consumer spending growth will decelerate in the fourth quarter, but it will remain mildly positive. The trends in household consumption patterns are still exhibiting some of the effects of the post-COVID transition and, as should be expected, some households are adjusting to this transition more gracefully than others.
During the pandemic and the immediate aftermath, all U.S. households were in an environment of very low interest rates, strong home price appreciation, and for many, there were generous debt forbearance programs. When these factors were combined with free helicopter money from the government and also a sharp reduction in the ability to spend money for many types of discretionary services, U.S. households found themselves flush with cash.
Now interest rates are substantially higher, and the debt forbearance programs are expiring. Home prices remain elevated, but access to that capital is much more difficult and expensive. A year ago, households were less sensitive than usual to higher interest rates because there were still a lot of excess savings in the system. But now a lot of the savings cushion is gone, and the higher interest rates are increasingly weighing on spending behavior.
It is no surprise this new environment is having the greatest affect on younger households and lower-income households. This is a good example of what I mean when I say not every segment of the economy will experience a soft landing equally.
The good news is the nation"s employment data has exhibited remarkable resilience thus far, and for now it appears unlikely there will be any significant reductions in jobs. But for these categories of households, spending growth will be modest at best.
Unfortunately, the plastics industry is another instance where the soft-landing scenario will diverge from the mean. Spending for many types of products has been curtailed by an emerging trend of market deselection for anything plastic. To be sure, this process has been anything but rational. Nevertheless, it is gathering momentum, and it is highly probable this topic will have a greater impact on the plastics industry next year than will the trends in the overall macroeconomy.
To summarize, the current holiday season in the U.S. will be merry and bright. It will not be merrier or brighter than last year, but it will still be pretty darned good. Plastics companies will want to pay close attention to whether any types of plastic products are being specifically avoided or selected by consumers this year. Obviously, all types of toys, recreational gear, decorations and packaging products are made of plastic, but how the market reacts to these products at this time of year may be instructive.
On a macro level, the glide path down to where the economy hits the target of a sustainable rate of inflation of 2 percent will occur in the middle of next year. That"s when we will officially land. The Fed will then start to lower the interest rates, households and businesses will start to sense renewed vigor, and the next expansionary cycle will begin.
Demand for many plastics products will also start to rise with the burgeoning economic expansion, but the existential threats of market deselection and governmental regulation will likely remain a burden on the industry as a whole.
* source : https://www.plasticsnews.com/news/us-economy-headed-soft-landing-based-retail-sales-data
자료출처 : www.plasticsnews.com
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