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If you’re ever tired of being in a good mood, you should spend some time watching basic cable business shows where red-faced Wall Street pundits talk about the economy as if we’re headed for some kind of “meteor that wiped out the dinosaurs” type of financial calamity.
And while we understand their concern, our advice is to not build a backyard bunker quite yet and to instead take a hard look at some of the underlying data so that you can understand what e-commerce brands can really expect for the remainder of 2022.
While the Dow Jones Industrial Average is far off its peak, it has shown surprising resilience in the face of strong inflation and negative economic news, rallying up 650 points at the close of market trading on June 15 after the US Commerce Department reported that retail spending rose by 1% in June.
And that number isn’t an outlier. For the first quarter of 2022, US retail spending hit $1.7 trillion, which is an increase of 10.9% from the previous year. It’s also why some financial experts are starting to think that endless talk of recession is all a bit overblown.
Speaking to the Wall Street Journal, Brad McMillan, chief investment officer at Commonwealth Financial Network, said that “You don’t get a recession by adding six million jobs or having consumer spending that isn’t shrinking. A lot of the retail report was just inflation. But on the other hand, sales are not going down, either. This doesn’t say ‘recession.”
So if everything we’re hearing is so bad, why are consumers still going to the mall? The answer is pretty simple: they have jobs.
Unemployment is at a touch-the-floor low rate of 3.6% and employers added a robust 366,000 jobs in June, which was only slightly off the nearly 400,000 jobs added in each of the previous three months and companies are still eager to hire. A review of public job listings show that there are still two openings available for every one person seeking a job.
“The labor market is cooling from a red-hot pace, but it’s far from going into a freeze,” said Sarah House, senior economist at Wells Fargo to the Journal. “It’s hard to get a broad retrenchment in activity when you have 372,000 more individuals receiving paychecks.”
Not only have jobs increased but wages have gone up as well. Average hourly earnings have increased by 5.1% since June of last year, and while some of those gains have been negated by the increase in prices, it’s still given American consumers enough confidence to keep up their spending.
Bank of America noted that even as their overall profits have fallen, they still saw a 17% increase in credit card spending, while default rates remain low and consumers are paying off their debt at a healthy level.
In a call with analysts, BoA chief executive Brian Moynihan said that “Despite the worries of a slowing economy…our customers’ resilience and health remain strong.”
He further noted that their customers are spending more on services than they are on goods, and they’ve seen a 41% increase in travel and entertainment spending in the second quarter compared to a year ago.
Since consumer spending makes up about two-thirds of the US economic activity, the fact that US shoppers remain resilient is a good sign that we won’t sink into a total economic abyss, even if there are rougher waters ahead.
So that’s a lot of interesting data, but what does it actually mean for you as someone who works in e-commerce? First, don’t panic. Now is probably a good time for caution but don’t think that you need to engage in lots of painful cost-cutting measures or dramatic price discounts to stay ahead of an economic tsunami that might not actually be coming.
Inflation prices for gas and housing will definitely eat into consumers’ discretionary spending, but as long as unemployment remains low and there is a strong demand for workers, it’s likely that consumers will continue to spend and do their part to prop up the economy.
This means that while you probably don’t want to over-extend yourself with financing or onboard tons of new hires in the next few months, you also shouldn’t feel like the sky is collapsing and that your business won’t continue to make sales as we creep closer to the ever important holiday buying season.
