Retail Sales and the State of the U.S. Consumer

Despite expressing pessimistic views of rising prices, consumers powered healthy retail spending through October, according to data released from the Census Bureau on Tuesday. On a month-over-month basis, total retail sales increased by 1.7% in October after growing by 0.8% in September.

Change in retail sales

While consumers may claim to be cynical about the state of the economy, their spending patterns suggest otherwise. Compared to the pre-COVID-19 environment, consumer sentiment is down by almost 30%, unchanged from the worst of the COVID-19 economic downturn. Meanwhile, retail sales are up 21% from pre-COVID times and up by 56% from the recessionary trough.

Consumer sentiment vs retail sales growth

In fact, the U.S. consumer is exceptionally strong following 20 months of emergency monetary and fiscal policy measures, which had the net effect of increasing consumer savings and boosting spending on goods. From the multifamily real estate perspective, the consumer spending has bolstered household formation rates and demand for housing as individuals move away from living with roommates or family members. At the same time, healthy finances have led to fewer challenges with housing affordability, meaning renters can spend less of their income on rent.

Consumer finances household demand

Moving forward, we expect the consumer to remain strong despite professed sentiment to the contrary and rising prices in the short-term. We are already detecting signs of a “normalizing” supply-side of the economy, with supply chain bottlenecks beginning to unwind based on consumer spending (e.g., rising motor vehicle sales) and the reduction in cargo lingering at ports. If these trends continue, 2022 could be a banner year for the U.S. consumer and, by extension, multifamily household formation.