Retailers Rely on Increased Consumer Spending
Consumer Spending Slows
Nike (NKE), Zara, Walmart (WMT), Amazon (AMZN), and a host of other consumer-facing companies have seen expectations rise as Wall Street bets pent-up-demand will lead to a protracted period of spending. After all, for months, strong demand has played a big role in driving up the prices of everything from vehicles to consumer products.
However, spending on credit cards, transportation usage, and the number of reservations in restaurants in the US and UK are starting to slow down. Attendance at movie theaters has also slowed.
There’s Reasons for Optimism
There are reasons for Wall Street to be hopeful about consumer spending trends. After all, US households’ wealth increased by $18 trillion last year, buoyed by pandemic stimulus checks and expanded unemployment benefits.
Meanwhile, European households amassed $711 billion in extra savings last year. Of that, nearly half was because consumers had fewer opportunities to spend money. During the second quarter, personal consumption expenditures in the US increased 11.8% on an annualized basis—the second-sharpest increase since 1952. The third quarter of 2020 holds the record.
For Wall Street’s projections to come true, consumers in the US and Europe will have to spend their savings at a faster rate than is typical. That will depend on how the economy fares. If it begins to slow, consumers may hold on to more of their savings, putting pressure on sales.
Retail Sales Won’t Fall Drastically
Despite the signs consumers may be slowing down their spending, nobody expects retail sales to decrease as much as they did at the onset of the pandemic, thanks to vaccinations.
But the Delta variant of COVID-19 could mean that recovery will not be entirely clear cut. Wall Street bet is that consumers will spend all their newfound cash, driving sales much higher in 2022 compared to where they would be in a world without COVID-19. It will be interesting to see if these predictions come true.
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