With more businesses reopening and bringing employees back to work, the US economy is on firm footing and could see its fastest growth in more than three decades.
“While there is a great deal of uncertainty about how fast and far this economy will grow in 2021, surveys show an increase in individuals being vaccinated, more willingness to receive a vaccination, increased spending intentions, and comfort with resuming pre-pandemic behaviours like shopping, travel and family gatherings,” says Jack Kleinhenz, chief economist at the National Retail Federation (NRF). “This feel-better situation will likely translate into higher levels of household spending, especially around upcoming holidays like the Fourth of July and spending associated with back-to-work and back-to-school.
“The consumer is nearly always the key driver in the economy, and with the consumer in good financial health, a sharp demand is expected to unfold over the coming months.”
Kleinhenz’s remarks came in the May issue of NRF’s Monthly Economic Review, which said NRF expects the economy to grow 6.6% this year, the highest level since 7.2% in 1984.
The report said the latest edition of the Federal Reserve’s Beige Book “affirms what the economic data has been signaling: US growth is beginning to accelerate.” The Fed assessment and other data show unemployment benefits, government stimulus cheques, and tax refunds have provided a substantial increase in personal income and purchasing power. Consumers are “sitting on a stockpile of cash” that could become “a spring-loaded spending mechanism,” Kleinhenz says.
Among other favourable indicators, the US$2.4 trillion saved by households during February alone was about twice the average monthly savings during pre-pandemic 2019 and comes on top of savings accumulated over the past year as consumers stayed home rather than dining out, travelling, or attending sports and entertainment events.
In addition, use of consumer credit is up, with outstanding credit surging in February to its highest level since late 2017. The increase in borrowing “highlights a consumer who is growing more confident as the economy accelerates, job growth picks up and more states lift burdensome restrictions,” Kleinhenz notes.
He cautions, however, that 2020’s “outsize swings” in economic data caused by the pandemic, hurricanes, wildfires, and other events will make year-over-year comparisons difficult during 2021. Federal agencies have “tried their best with the information available” to make seasonal adjustments account for the swings, he notes.
NRF’s calculation of retail sales – which excludes automobile dealers, gasoline stations and restaurants to focus on core retail – is based on data from the Census Bureau, which released its annual revision of retail sales going back to 2013 last week. NRF has revised its numbers accordingly and now shows 2020 retail sales of $4.02 trillion rather than the $4.06 trillion originally reported. But 2020 grew 6.9% over 2019 rather than 6.7% because 2019 was revised down to $3.76 trillion from $3.81 trillion.
The annual update is done to replace previously reported data with more accurate data and to benchmark numbers to the Census Bureau’s Annual Retail Trade Survey.
Even with the revisions, 2020 sales broke the previous record of 6.3% set in 2004 despite the pandemic. NRF has forecast that 2021 retail sales – excluding autos, gas and restaurants – will grow between 6.5-8.2% over 2020 to between $4.33 trillion and $4.4 trillion.