As previewed, the March retail sales report from the U.S. Census Bureau showed a nice improvement from the January/February pace, up +4.0% year-over-year. Standouts from a change in trend perspective include home improvement & garden, general merchants, and non-store retail (online retail). As we've discussed, contributors to the acceleration include improved consumer spending sentiment, spring weather and Easter, easy comparisons, and Amazon’s spring savings event (for the non-store category), which was a first. The detailed data also shows that department stores had a better February and March, as we had pointed to last week.
In our December and January notes about the outlook for a better 2024 for consumer spending on goods and retail, we wrote that there would be a normalization from spending on “fun” (services) as the pendulum swung back from the extremes of the second half of 2022 and 2023. The mechanism being less absolute dollar growth going to fun, which would leave more dollar growth available for spending on “stuff” (physical goods). As many are rooted in recency bias, that would be a positive surprise for retail. Well, March retail sales (and our discussion on LVMH above) suggest that "stuff vs. fun" is unfolding as expected.
American Express’ results support that viewpoint. In the table below, we break down its consumers' (generally a more affluent audience) spending increase between stuff and fun. In Q1 2023, more spending on stuff was only +$9B, representing an increase of +10%, whereas more spending on fun was +$11B, +31%. The +31% got all the attention. For Q1 2024, more spending on stuff was +$8B, representing an +8% increase, whereas more spending on fun was only +$3B, +7%. Voilà! Yes, $8B is less than $9B, but the $9B had a lot of inflation tied to it and so the $8 would represent more volume spending. Additionally, as a share of incremental spending, the ratio between $8B/$3B (2.7x) in Q1 2024 is well above the ratio between $9B/$11B (0.8x) in Q1 2023. As noted in our March preview, we expect April and May to be strong months for spending on stuff and retail. (With the caveat that the geopolitical situation and the price of oil are concerning and a risk to our expectations.)
