Will 2017 Economic Conditions Be C-store Favorable?
NATIONAL REPORT — Convenience store retailers are feeling pretty good about the overall conditions for the U.S. economy in 2017, and the industry’s suppliers are feeling even better. More than 60 percent of the c-store retailers surveyed for this year’s Convenience Store News Forecast Study and 73 percent of the c-store suppliers surveyed said they view economic conditions for 2017 as positive.
Our consulting economist Maureen Maguire agrees with their assessment. The consumer is "healthy," leading to high consumer confidence, which translates into healthy consumer spending, she explained. The economy is operating near full employment, inflation is low, and interest rates are relatively low. At the same time, the stock market continues to push new highs, which translates into positive wealth effects and circles back to a healthy consumer.
The 15th annual CSNews Forecast Study provides dollar and unit volume projections in key c-store product categories based on data from various sources, including Nielsen for category sales history; TDLinx for store counts; and government sources for motor fuel volume and pricing data. The data is then run through a sophisticated projection model and presented in summary form. Maguire, founder and CEO of New York-based ThinkResearch, oversees the Forecast Study process.
Here’s more of what Maguire has to say about the upcoming months:
CSNews: Last year at this time, we said: "Now is one of the best times in history to be a convenience store retailer." Does this still hold true? Why or why not?
Maguire: It is still a very good time to be a convenience store retailer. The consumer is healthy and there is no reason to think otherwise. The economy is operating near full employment, inflation is low, and interest rates are relatively low. The stock market continues to push new highs, which translates into positive wealth effects.
The issues to focus on are questions surrounding a fiscal stimulus package that may be passed in the new Congress, which would most likely make the economy run stronger and, while we are at full employment, will cause inflation to increase and hence cause interest rates to climb.
Generally, one of the most important features of convenience stores is "convenience." As long as retailers continue to listen to their customers and provide what they are looking for, whether that’s a good and unique experience, a "hometown" or "local" feel, or a broad offering including edibles, they will continue to benefit from the loyalty of their customers.
CSNews: In general, will the c-store business in 2017 be better, worse or the same as 2016?
Maguire: There are several issues to consider here. Barring any unforeseen circumstances such as terrorist activities, geopolitical disruptions or weather-related effects that would cause the consumer to pause or slow down spending, the consumer is healthy. Consumer confidence is high, which translates into healthy consumer spending — not what I would call robust, but healthy — and the unemployment rate is historically low. Investment spending has been weak, which is a concern.
The new administration has said it wants to lower corporate taxes, which would help investment spending and eventually work to flow through into new jobs. The new administration also wants to rethink or renegotiate trade deals. However, trade has helped to keep inflation low. By limiting trade, at least in the short run, disruptions will occur and cause market volatility. Markets generally dislike volatility and in times of uncertainty, spending both at the corporate and consumer levels may slow. The administration also would like to lower personal income taxes, which should act to provide more discretionary income for consumers.
With interest rates increasing, and perhaps increasing faster given any stimulus package, the cost of financing expansions and new store creation will increase. So, while the environment is healthy, the cost of financing will start to increase very soon and perhaps increase faster given any fiscal stimulus.
CSNews: What is your overall U.S. economic outlook for 2017?
Maguire: Generally, the forecast is for steady, albeit moderate growth and a continuation of job growth. However, we need to see more detail about the new administration’s policy details. If there is an infrastructure package passed, which is a big "if" given the Republican-controlled Congress, will the package be a net stimulus or a net neutral? If the package is a net stimulus, inflation would likely increase and interest-rate increases will follow.
Another policy question that has to be answered is who will be affected by the proposed tax cuts. Will the proposed tax cuts be targeted outside of the highest tax bracket and to the middle class so that there is more discretionary spending for the average convenience store customer?
CSNews: What economic factors could benefit the c-store business in 2017?
Maguire: Lower corporate tax rates seem to be the policy element that would be most beneficial to the c-store business directly and indirectly. If corporations are facing political tailwinds, in the form of lower taxes or other benefits, then job creation will be sustained and perhaps increase.
CSNews: What economic factors could hurt the c-store business in 2017?
Maguire: A downturn in the economy caused by almost any factor would hurt the c-store business. Examples would be a consumer-led recession or a global downturn. The recovery is almost eight years old and while expansions generally don’t die of old age, they expire because of policy mistakes or an unforeseen event (e.g., an act of terrorism/war). The recovery is older than the average of all expansions since 1945. The price of oil, which in the recent past has been historically low, should remain low due to lack of robust global demand. The low price of natural gas, due mostly to the lower cost of shale drilling, does nothing to incent oil exploration. Given that, low gas prices act to keep consumers away from the pumps [on a more frequent basis] and hence out of the convenience stores.
Look in the January issue of Convenience Store News for the full Forecast Study.