The next few months represent the two most important seasons of the year for many plastics processors, their customers and suppliers: back-to-school and the holidays.
These two seasons not only play a large part in determining how well the economy will do in 2018, but they also provide the first insight into what kind of growth we can expect for 2019. If you are like me, you will spend less time reflecting and more time forecasting in the coming months.
The good news is that as we enter this critical part of the year, the state of the American consumer is strong. When compared with last year, households have more money at their disposal and they are spending a good portion of this extra income. A combination of stronger wage growth and tax cuts will push the growth rate in real disposable income up to 3 percent this year. This is a significant improvement when compared with the gain of 2.6 percent last year.
Some of this gain in income is going into savings or to pay off debt. Recent generations of Americans do not enjoy a reputation as good savers; nevertheless, the savings rate will post a modest gain to about 7 percent this year. A rising savings rate and lower debt levels — economists refer to this as stronger household balance sheets — are crucial trends for a healthy, long-term outlook because they significantly lower the probabilities of a prolonged and severe economic recession in the future.
This uptick in frugality notwithstanding, much of the rise in incomes is getting spent now. Total retail sales, excluding motor vehicles, in the U.S. are expanding at their fastest rate in the past six years. My latest forecast for retail sales, excluding autos, calls for a gain of 5.7 percent this year. By comparison, overall retail sales expanded 4.5 percent in 2017.
Taking a closer look at the data, the strongest growth this year by far is in online sales. This category is expanding at a pace of 10 percent this year. Most people think of Amazon when they think of shopping online, but Walmart and Target are also having monster years in 2018. And both these companies have invested heavily in their online activities. The managers may take all the credit, but the fact that all three of these companies are reporting such tremendous earnings growth this year says a lot more to me about the activity levels of the American consumer.