Advance estimates of monthly retail sales reported by the U.S. Census Bureau increased 3.8% in January, a strong showing in the face of the Omicron variant and decades-high inflation. We believe the financial comforts of excess savings are supporting this strong consumer spending, as is the tight job market.
We expect elevated demand to continue to buoy most of the retail sector well into 2022. However, University of Michigan consumer sentiment is at a 10-year low due to inflation concerns. The recent consumer price index reading of 7.5% was the highest since 1982, and we believe there's more to come. Packaged food and household products companies have yet to pass through all of their price hikes, and so consumers will likely face more sticker shock before prices stabilize. As grocery and gas bills increasingly squeeze budgets, we expect that consumers will defer some expenditures and switch to less-expensive brands in the second half of the year. But for the time being, retailers can enjoy consumers' price inelasticity.
Our rating actions in the U.S. retail sector continue to reflect this positive momentum. Positive rating actions outnumber negative ones so far this year, though by a narrower margin than in 2021. And the net positive bias in our ratings outlook suggests more positive actions are likely to come. We believe the credit quality improvement will slow in the year's second half, as retailers will need to resort to sales and promotions to move products when consumers are less eager to shop.
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This report does not constitute a rating action.
| Primary Credit Analyst: | Sarah E Wyeth, New York + 1 (212) 438 5658; sarah.wyeth@spglobal.com |
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