March 30, 2017
American consumers continued spending at a healthy clip through last year’s holiday season, with the total retail and food service sales topping $5.5 trillion for the entire year. After a slow start to the holiday season, retail sales picked up momentum. Sales rose by 3.3 percent for the year, considerably faster than the 2.3 percent growth recorded during 2015. December sales alone were up by 0.6 percent. Fourth-quarter sales were up about 4 percent from the fourth quarter of 2015.
Several economic factors combined to keep spending strong. During the final months of last year, wages were picking up, and the stock market was booming.
Because consumer spending accounts for two-thirds of U.S. economic activity, the rate of retail sales growth is a vital indicator of economic activity. And because corrugated demand correlates closely with the production of these goods, independent corrugated converters not only need to know how rapidly retail sales are growing, but also must keep track of the various sectors through which consumers make their purchases.
The chart below shows how retail sales were distributed by type of outlet. Consumers spent more on motor vehicles last year than on any other store category. More than one-fifth of total retail and food service sales went into this sector, which posted record sales in 2016. Motor vehicle sales grew by 3.8 percent last year, besting the 3.3 percent total retail sales growth mark.
Food and beverage stores accounted for 13 percent of retail sales but experienced slower growth of 2.4 percent. Since the last recession, consumers have been favoring food service establishments at the expense of grocery stores’ growth. Food services spending accounted for 12 percent of retail spending and grew at 6 percent last year, 2½ times faster than spending in food and beverage stores. At the present growth rates, spending at bars and restaurants will exceed spending in grocery stores in only a few years.
This chart shows the wide range of sales growth rates in several of the key retail sectors.
The most disruptive change in consumer spending patterns is the continuing shift from mall shopping to online shopping. On the one hand, Amazon.com Inc. reported 19 percent sales growth last year, while Macy’s has identified 100 stores for closure and will cut more than 10,000 jobs. General merchandise stores accounted for 12 percent of retail sales last year. All types of these stores, including supercenters, warehouse clubs, and department stores, saw sales fall by 0.8 percent last year. Department stores fared the worst, with their sales declining by 5.6 percent for the entire year. Close behind them, though, are nonstore retailers, which last year had increased their share of retail sales to 10 percent. Overall spending at nonstore retailers, which includes mail-order business as well as e-commerce businesses, grew at 11.4 percent, the fastest of any sector. In another year or two, shoppers will be spending more online than in stores for goods, continuing to fuel the shift in corrugated packaging needs from “retail-ready” to “warehouse-ready.”
Last year, 6 percent of shoppers’ dollars went to health and personal care stores, including pharmacies and drugstores, a sector in which spending has been increasing at a faster-than-average rate. Sales at these stores grew at 7.4 percent last year, exceeded only by nonstore retailers’ sales growth.
Building material and garden equipment/supply stores accounted for 6 percent of 2016 retail sales volume, about the same amount as drugstore spending. Home remodeling activity has been high, and as a result, sales at these stores have grown at a disproportionately high rate. Last year, building materials stores’ sales rose by 5.9 percent.
Finally, electronics and appliance stores find themselves under pressure from online outlets. As a result, sales in this retail category declined by 3.2 percent in 2016.
The positive economic factors that supported robust consumer spending
last year remain in place for 2017. Consumer spending should continue
to grow at a pace of around 3 percent this year, boding well for suppliers of corrugated packaging.
Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.
