U.S. retail sales performed better than expected in January, but consumer sentiment dipped this month – all while consumer prices rose, indicating increasing inflation pressures that could allow the Fed to enact multiple interest rate hikes in 2017. Such findings are representative of the complicated economic landscape business leaders in the promotional products industry and beyond are attempting to map out during the first quarter.
Despite motor vehicle purchases experiencing their largest drop in 10 months, retail sales overall rose 0.4% in January as households bought more electronics and other goods, the U.S. Commerce Department reported this week. Following a December in which sales accelerated an upwardly revised 1%, last month’s gain outpaced the expectations of economists, who had predicted a 0.1% increase. A strengthening job market, moderate wage growth and discounting helped propel spending. Combined with growing business optimism that suggests a pick-up in investment, the rise in retail sales indicates that first quarter economic performance could be solid, according to some analysts. “We will see decent retail sales in the coming months,” Ryan Sweet, a senior economist at Moody’s Analytics Inc., said in a BloombergMarkets report. “The job market is tight. The fundamentals continue to be very supportive. The story for 2017 will again be one of the consumer driving the economy.”
Nonetheless, not all bellwethers were tolling positive notes. The University of Michigan’s index on consumer sentiment retreated in February, down from January’s 13-year high, dropping from 98.5 to 95.7. Steeper than expected, the decline occurred as consumer expectations on finances fell to a six-month low. A measure of how consumers think the economy will be performing in six months also decreased, dropping to a three-month low – 85.7, down from 90.3. Admittedly, partisan politics appear to have been a key factor in influencing the results, with Democrats expressing sentiments in line with recession and Republicans relating sentiments correlating to expansion.
Meanwhile, the Labor Department reported Wednesday that its Consumer Price Index (CPI) rose 0.6% in January – the biggest monthly rise in nearly four years and double what economists had forecast. For the 12 months through January, the CPI was up 2.5% – the largest year-on-year gain since March 2012. The Fed has a 2% inflation target and tracks an inflation measure that currently sits at 1.7%. Intensifying inflation, along with other factors like a tight labor market, could influence the Fed to increase interest rates at least twice this year.
For promotional product distributors, the macroeconomic data provides both encouragement and concern – a mixture compounded by the uncertainty emanating from Washington, D.C. “I think all bets are off with President Trump, specifically as it relates to our industry where an import tax would affect everyone’s costs,” said Josh Frey, owner of On Sales Promos and The Swag Coach Program (asi/340317).
Even so, Frey and others remain optimistic that 2017 – despite or, in part, because of broader economic trends – can be a good year for distributors who go to market with smart strategies. “For me, it’s always the same: Bring value to your clients and build long-term, meaningful relationships,” and you stand a good chance of success, said Frey. Overture Premiums & Promotions (asi/288473) is among the other optimistic distributors. “We’re expecting double-digit growth this year,” said Tej Shah, VP of marketing and ecommerce. “How that ties into the larger economy is tough to say. But we’re looking at a lot of good signals for 2017.”