The Census Bureau said Wednesday that retail sales fell 0.1 percent last month, less than the 0.3 percent decline economists had expected.
This has continued a trend this year as Americans look beyond sky-high inflation, rising interest rates and regional bank bankruptcies, continuing to open their wallets not just for everyday purchases but also for travel, entertainment and big-ticket goods.
But now, with the labor market slowing noticeably, wage growth moderating, and savings accumulating since the pandemic began running out, the question haunting officials is how long can the American consumer retain that flexibility?
Announcing their latest quarterly earnings after a big summer spending season, retailers noted this week that spending on discretionary items such as furniture, clothing and appliances remains weak, as shoppers prioritize groceries and health and wellness products.
“Overall, the theme is that the consumer has been resilient but we’re starting to see a little bit of a stretch,” said Corey Tarlow, an analyst at Jefferies. “The trends are starting to become a little more worrying.”
Home Depot noted that customers are delaying large home improvement projects and focusing on smaller projects. Transactions over $1,000 were down 5.2 percent year over year, as fewer consumers invested in new flooring, countertops and cabinets, William Pastek, the retailer’s executive vice president of merchandising, told analysts.
Walmart, the largest US retailer, warned that overall revenue growth will moderate in the holiday quarter, after seeing sales decline in the second half of October, including slower-than-expected growth in sales of Halloween-themed items. .
The Arkansas-based group’s general merchandise sales declined modestly in the third quarter, even as demand strengthened in the grocery and health and wellness categories.
John David Rennie, Walmart’s chief financial officer, pointed to the role played by discounts, telling the Financial Times that sales between promotions were slower. “The consumer is discriminating; they are making sure they are waiting for these promotional events to go out and buy these expensive items,” he said.
Sarah Wolf, an economist at Morgan Stanley, said the discrepancy between official spending data and the message from retailers stems from the disproportionate influence of the richest 20 percent of the population on overall spending.
Wolf noted that these high-income earners increased their share of consumer spending from 39 percent to 45 percent over the past two years, when they accumulated “an enormous amount of excess savings.”
Retailers across a broader range of income groups cited weaker discretionary spending, with Target, Macy’s and Home Depot all reporting similar sales declines last quarter.
“Consumers are still spending, but pressures such as rising interest rates, resumption of student loan repayments, increasing credit card debt and lower savings rates have left them with less discretionary income, forcing them to make trade-offs in their household budgets,” he said. Target CEO Brian Cornell.
Meanwhile, retailers known for offering value prices or other deals have benefited from the pressure that inflation has placed on consumers with limited budgets. Walmart and discount retailers TJX and Ross Stores both reported an uptick in customer traffic and similar growth in sales.
U.S. consumers have begun to focus spending around discount events such as Walmart Deal Days and Amazon Prime Days, and are becoming less likely to visit a store to buy full-price items, Jefferies’ Tarlow said.
“The market for expected discounts remains strong,” said Greg Portell, senior partner at consulting firm Kearney. “If you have middle-class consumers moving to the (discount channel), that’s new money that changes the competitive dynamic.”
Analysts at Bank of America identified some generational differences behind the headline spending numbers, finding that affluent “boomers” and “traditionals” increased their consumption, while spending declined and credit card delinquency rates rose among younger generations, which saw greater hurdles. of higher rates.
“Bank of America card data showed that baby boomers are accelerating their spending while all other groups are spending less in dollar terms,” said Osung Kwon, equity strategist at Bank of America, adding that the boom in service sectors, such as travel and hospitality, is beginning to normalize.
“You’re seeing a divide among consumers,” Kearney’s Portell added. “Consumers at the higher end of the income spectrum are still very strong. At the other end… (you have) consumers who are more price sensitive, looking for the right mix of price and value.
Meanwhile, luxury retailers reported a slowdown as aspirational customers cut back on their spending. Although U.S. luxury brands Tapestry and Ralph Lauren reported revenue growth last quarter, they cited weak demand in North America.
“High-income households will not fall off the cliff, but they will start to be more cautious,” Morgan Stanley’s Wolff said.
Spending until this year was largely driven by pent-up demand, but now that demand has been met, higher earners will pull back on their spending. “I can’t see any positive trend for consumers next year,” she predicted.
