Heightened Consumer Confidence Remains Driver Behind Strong Spending, Improving Outlook for Retail

 

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Research Brief
May 2018
RETAIL
Developing Trends
Job market easing modestly. The U.S. economy added 164,000 jobs in April, dropping the national unemployment rate to 3.9 percent, the lowest measure since December 2000. Job openings, however, reached a record 6.6 million positions, signaling that there may be a shortage of qualified workers.
Large companies beginning to invest more in their workers. The sizable corporate tax cuts could become more evident in the near future, as companies like CVS, Starbucks and Target have committed to raising wages. A tightening labor market should provide a boost to wages, as well.
Consumers optimistic about U.S. economy. With the national economy exhibiting considerable strength, consumer confidence has risen 7.8 percent year over year. Key economic indicators point to a continuation of this upward trend.
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Heightened Consumer Confidence Remains Driver Behind Strong Spending, Improving Outlook for Retail
Stout retail sales growth a product of strong economic metrics. The confluence of several factors contributed to another month of steady spending. Core retail sales increased 4 percent year over year in April, the third straight month of at least 4 percent annual growth. Near record-high levels of consumer confidence have aided retail sales in past months, as many consumers now have more discretionary income, largely due to tax cuts and solid wage growth. Wage gains have remained range-bound in the mid-2 percent area for the past few years, but this number is expected to rise as large companies portend wage hikes. Additionally, the unemployment rate slid below 4 percent in April thanks to another month of job creation. With a number of tailwinds propelling retail, the sector is poised for continued growth this year. Investors seek stability when exploring retail investment options. With investor sentiment moving back to an upward trend, retail investments have become a more engaging option for those looking to deploy capital into commercial real estate. Positive spending trends in grocery stores have generated increased investor demand for centers anchored by these assets. High foot traffic and the adoption of omnichannel retail practices make them particularly attractive. Food and beverage sales have also generated a strong performance in recent months. Bolstered spending in this category has enticed some investors to examine quick-service and fast-casual restaurant investment opportunities more closely. These assets have proved to be relatively stable through a range of economic conditions, providing investors with the confidence of the assets’ durability.
4.0% Core Retail Sales
Y-O-Y*
7.8 % Consumer Confidence Index
Y-O-Y*
* Through April
Trailing 12-month average
Core retail sales exclude auto and gasoline sales
Sources: Marcus & Millichap Research Services; BEA; BLS; U.S. Census Bureau
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