The U.S. economy showed much more substantial than expected 2% growth in the first quarter, according to an extensive upward revision Thursday from the Commerce Department.

Gross domestic product increased at a 2% annualized pace for the January-through-March period, up from the previous estimate of 1.3% and ahead of the 1.4% Dow Jones consensus forecast. This was the third and final estimate for Q1 GDP. The growth rate was 2.6% in the fourth quarter.

The upward revision helps undercut widespread expectations that the U.S. is approaching a recession.

USA economy benefiting from consumer expenditure 

According to a summary from the department’s Bureau of Economic Analysis, the change came in large part because both consumer expenditures and exports were more substantial than previously thought.

Consumer spending, as gauged by personal consumption expenditures, rose 4.2%, the highest quarterly pace since the second quarter of 2021. At the same time, exports rose 7.8% after falling 3.7% in the fourth quarter of 2022.

And while we still don’t have a clear trend, it is fairly safe to assume that consumer spending is going to keep on growing, in many cases boosted by e-commerce as it has been the trend in the past year. 

In fact, even in the early months of 2022, amid record inflation, a McKinsey report showed that US consumers continued to open their wallets. US inflation grew to nearly 8.5 percent in March 2022, with the May 2021 to March 2022 period showing the highest inflation in a decade. 

US consumers spent 18 percent more in March 2022 than they did two years earlier and 12 percent more than they were forecast to spend based on the pre-COVID-19 trajectory.

Inflation is also downward

Core PCE prices, which exclude food and energy, rose 4.9% in the period, a downward revision of 0.1 percentage point. The all-time price index increased 3.8%, unchanged from the last estimate.

Federal Reserve policymakers most closely watched core PCE as an inflation indicator. Through a series of rate increases, the Fed is trying to get inflation back down to 2%.

The rate hikes are targeted at slowing down an economy that, in the summer of 2022, was generating inflation at the highest level since the early 1980s.

One specific focus for the Fed has been the labor market. There currently are about 1.7 open positions for every available worker, and the tightness has resulted in a push higher for wages which generally need to catch up with inflation.

A separate report Thursday from the Labor Department pointed showed that initial jobless claims fell to 239,000 for the week ended June 24. That was a decline of 26,000 from the previous week and well below the estimate of 264,000.

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Walmart is selling the online apparel brand Eloquii to FullBeauty Brands, marking the retailer’s third divestiture of a direct-to-consumer brand this year.

The big-box retailer sold Bonobos to WHP Global and Express earlier this month and offloaded Moosejaw to Dick’s Sporting Goods in February. The sales are a reversal of a 2017-18 strategy led by Marc Lore, Walmart’s former head of e-commerce.

The retailer bought Eloquii in 2018 for a reported $100 million, one of the numerous digital apparel brands with niche and loyal consumer bases. The goal was to build out the retailer’s online assortment with higher-margin apparel and home merchandise. The acquisitions would also bring in talent that could help Walmart accelerate its digital strategy.

“Eloquii joined Walmart’s portfolio of digitally native vertical brands to expand our Women’s assortment in sizes 14+ and offer the unique and differentiated product in an underserved but growing segment,” Walmart spokesperson Jaeme Laczkowski said in a statement. “Since acquiring Eloquii, Walmart.com has grown to hundreds of millions of items, and we’ve decided it’s the right time to sell Eloquii.”

FullBeauty Brands is buying Eloquii for an undisclosed sum, retaining its co-founder and brand leader, Julie Carnevale. Eloquii will join a portfolio of online plus-size apparel, shoes, and swimwear brands under FullBeauty Brands, which has 5 million active customers. 

Walmart re-engineering its business in 2023

Walmart is re-engineering its supply chain and business model in 2023. The brand aims to fulfill customer needs with a more intelligent and connected omnichannel network enabled by greater data use, intelligent software, and automation. 

The outcome improves in-stock, inventory accuracy, and flow whether customers shop in stores, pick up, or have a delivery.

Walmart showcased its supply chain innovation Tuesday at its Brooksville, Fla., regional distribution center as one piece of how the company is building a scaled system of supply chain capabilities that uses data, software, and robotics. 

Through automation and state-of-the-art technology, the company illustrated how the increased item storage allows the distribution center to provide a more consistent, predictable, and higher-quality delivery service to stores and customers and react more quickly to customer demand.

Stores operate as a place to shop and as fulfillment centers and delivery stations. Distribution and fulfillment centers hold a mix of items from suppliers and sellers. This allows Walmart to use its existing assets more flexibly and efficiently for new working methods.

By the end of Fiscal Year 2026, Walmart believes roughly 65% of stores will be serviced by automation, approximately 55% of the fulfillment center volume will move through automated facilities, and unit cost averages could improve by about 20%.

As the changes are implemented across the business, one of the outcomes is roles that require less physical labor but have a higher pay rate. Over time, the company anticipates increased throughput per person due to automation while maintaining or improving its associates' number as new roles are created.

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U.S. customers reached record sales during this year’s holiday season. Still, according to CNN, this was primarily due to inflation, which forced consumers to spend more for retail goods and dining experiences.

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U.S. retail sales increased 7.6% from November 1 to December 24, compared to the same time last year, according to the Mastercard Spending Pulse, released past Monday, and published by CNN. 

The index tracks in-store and online retail sales, excluding automotive sales, across all forms of payment and is not adjusted for inflation.

The report is a welcome sign after a pullback in consumer spending led to a dip in US retail sales in November, despite a strong turnout for Black Friday. Still, inflation likely accounts for much of the year-over-year rise in holiday spending.

Record sales with diversified spending 

The Personal Consumption Expenditures price index — the Federal Reserve’s preferred measure of inflation — rose 5.5% in November from a year earlier, the Commerce Department reported Friday.

“Consumers and retailers navigated the season well, displaying resilience amid increasing economic pressures,” Michelle Meyer, North America Chief Economist at the Mastercard Economics Institute, said in a statement.

According to Mastercard, consumers diversified spending to cope with higher prices and prioritized dining out and other experiences. Restaurant sales grew more than 15% compared to the same period last year.

After the sales comes… the returns 

Alongside the record sales, retailers in the U.S. are already expecting the so-called ‘return season’. Usually, a couple of weeks after a tremendous sale season, brands and companies are slammed with returns. Especially because the e-commerce industry turned into a golden standard, the ‘free returns policies’.  

From customers who hated the gift they were given, to people who just needed a change of color or size in their product, to others who genuinely had issues with their brand new product, a myriad of buyers return what they bought for a myriad of reasons. 

And the volume of returned products is massive and has quickly become a huge issue for brands and the environment. 

Customers sent back around 17% of the total merchandise they purchased in 2022, totaling $816 billion, according to data from the National Retail Federation.

That’s a strain on retailers: For every $1 billion in sales, the average retailer incurs $165 million in merchandise returns, according to the NRF. Not to mention the added CO2 emissions and the substantial carbon footprint derived from the returns. 

“For every dollar in returned merchandise, it costs a retailer between 15 cents to 30 cents to handle it,” Burt Flickinger, retail expert and managing director of retail consultancy Strategic Resource Group, according to a report by CNN earlier this year.

It seems that the 2022 Christmas and New Year ‘return season’ will be the last free return season, for the free inverse logistic standard no longer seems possible to sustain. 

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