Moderate Retail Sales Mask Positive Underlying Trends; Robust Growth on the Horizon

July 21, 2014

  • The bevy of recent economic indicators has mostly fallen into two camps; one suggesting the economy is poised to break out of the slow-growth slumber recorded since the recession and another signaling cautious expansion will continue to reign. The pace of job growth and consumer confidence, for example, are near post-recession highs, while a disappointing first-quarter GDP report and slipping home sales paint a bleaker outlook. At first glance, June’s modest retail sales growth lends support to the latter argument; however, the underlying fundamentals suggest stronger retail sales are on the horizon. Historically low debt burdens, the wealth effect, relaxing lending standards and pent-up demand all point to stronger improvement once wage growth finally gains traction, which could happen in the second half of the year.
  • Excluding autos and gas, total retail sales advanced 0.4 percent in June, and figures from the previous two months were revised significantly higher. The largest drag on overall retail spending during June was from auto sales, though unit sales increased. Discounting by dealerships to make room for 2015 models likely contributed to the decline, which should be a temporary setback. Segment leaders for the month include nonstore retailers, general merchandisers, and clothing and apparel stores. Internet sales show no indication of losing momentum after advancing more than 8 percent over the past year, nearly double the overall rate of growth.

  • Although some headwinds persist, such as the conflicts in Ukraine and the Middle East, modest wage growth is the primary deterrent to more robust consumer spending. Year over year, wages have climbed 3.8 percent, and they are now 12.2 percent above the pre-recession peak. As unemployment continues to fall and employers compete for potential hires, wage growth should accelerate. The impact of a tightening job market will also create opportunities for younger workers and encourage some of the extra 3.3 million young people living at home to create new households, which could be a boon for retail sales.

    Impact on Commercial Real Estate

  • Operations are improving despite a shifting retail landscape that rewards retailers with an effective storefront and online presence. By year-end 2014, retail vacancy will fall to 6.5 percent, just 20 basis points above the rate at the beginning of the recession. Despite the gain in occupancy, operators have been slow to lift asking rents, which will finish the year 10 percent below the previous peak.

  • Supported by growing online sales, the industrial market is performing well as retailers position fulfillment centers closer to population centers. Amazon, in particular, is collecting sales tax in more than 20 states and rapidly expanding to compete on timeliness in areas where the pricing competitive edge has eroded. Overall, industrial vacancy will decline to 7.1 percent this year, nearly 100 basis points below the pre-recession rate.

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The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.


  1. Posted July 27, 2014 at 3:53 am | Permalink | Reply

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  2. Posted August 12, 2014 at 9:23 am | Permalink | Reply

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    Posted March 25, 2015 at 1:25 pm | Permalink | Reply

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