Many retailers have reported that shoppers have made fewer trips and smaller baskets in recent months as higher prices weigh on household budgets. Grocery prices rose 12.2% this summer from a year ago, marking the largest annual increase in 43 years.
Betsey Stevenson, an economist at the University of Michigan, said concern has grown for more households and although they are grateful to still have a job, many have started to divert spending away from discretionary purchases as it need more to cover the essentials.
Consumer staples like bread and cereals saw their prices rise 14%, dairy products like butter rose 26%, and chicken prices rose more than 15% from a year ago. a year. Consumer confidence readings in August were slightly better than the previous three months. But sentiment as measured by the University of Michigan survey found sentiment’s uptick in August was still 17% from the same period a year ago.
Low-income consumers, who have fewer resources to hedge against inflation, expressed the most concern, and in numbers this cohort outnumbers high-income consumers who have more protection against rising prices. price. Stevenson said overall sentiment remains extremely low by historical standards.
Retail analysts largely expect a slowdown in consumer spending, which could spell trouble for retailers who have taken advantage of higher prices to boost revenue in 2022. While net net income has been challenged by higher operating costs and tighter margins, retailers have largely experienced strong stability. -in-store sales and good store traffic in recent months.
“Big box retailers are likely struggling right now as discretionary spending declines. Sales are slowing down and that’s a problem. Some like Target who have big inventory issues, good traffic but they have the wrong inventory. It will take time to fix,” said Stephanie Link of Hightower Advisors.
Wells Fargo economists said the two pillars supporting the US economy – housing and the tight labor market – are beginning to falter. With more layoffs announced in recent weeks and a sharp drop in new home loan applications, more consumers are being pushed out of the housing market due to record prices and rising interest rates. Wells Fargo predicts that the United States will be in recession at the start of 2023. Some economists have said that consumers could see their purchasing power increase if inflation moderates, but this remains unlikely in the short term.
The National Retail Federation said that although US growth has slowed, it is still unclear if and when a recession could be heralded.
“As we come to the end of the summer, economic indicators are signaling an unstable U.S. expansion in the face of several headwinds,” said NRF chief economist Jack Kleinhenz.
Noting ongoing inflation, Federal Reserve interest rate hikes, stock market volatility and other catalysts for the recession, he said the factors are contributing to the debate over whether the economy is already in recession.
“All eyes remain on the consumer and what happens in retail is very important,” Kleinhenz said. “While consumers have become more cautious and cooled their spending in the first half of 2022, households continue to spend and face inflation by using credit cards more, saving less and dipping into accumulated savings. during the pandemic. Consumer stamina will be the big question in the future.
During the second quarter, gross domestic product fell by an annual rate of 0.6% after falling 1.6% in the first quarter, according to the US Bureau of Economic Analysis. Consumer spending rose 1.5%, but underlying trends for the second quarter still reflected a general slowdown in the economy.
While US Census Bureau data showed retail sales were flat month-over-month in July, base sales as calculated by NRF (excluding gas stations, auto dealerships and restaurants) rose 0.8% from June, showing a sign of resilience as lower gas prices led to higher spending in many areas, Kleinhenz said.
Statewide spending data was made available this week by the US Census Department. The data showed that retail sales in Arkansas rose 13.5% in May from a year ago, nearly double the rate of the national increase of 7%. Spending did not include online purchases from non-store retailers like Wayfair or Amazon. Expenses are also not adjusted for inflation.
Spending at gas stations in Arkansas rose 46.2% in May from the same period a year ago. National spending at gas stations rose 46.3% in May compared to the same month last year. Sales at electronics and appliance stores in Arkansas fell 5.1% from the same month last year and 5.7% nationally.