### Summary
Former Toys "R" Us CEO Gerald Storch warned that the economy is likely to face a difficult holiday season due to persistent inflation. Other economic stresses such as rising interest rates, credit card debt, and student loans are also contributing to consumer difficulties.
### Facts
- Inflation remains sticky despite the Inflation Reduction Act that was passed a year ago.
- Sales of physical products have been declining for 11 consecutive months when adjusted for inflation.
- The July consumer price index (CPI) rose 0.2%, with prices climbing 3.2% from the same time last year.
- Pulte Capital CEO Bill Pulte suggests that the economy is in a period of stagflation with low growth and high inflation.
- Shelter costs, accounting for 40% of the core inflation increase, rose 0.4% for the month and are up 7.7% over the past year.
- Americans are spending $709 more per month on everyday goods and services compared to two years ago.
- Consumers are shifting towards value retailers in response to inflation.
- President Biden acknowledges that the Inflation Reduction Act was not solely aimed at reducing inflation but rather focused on generating economic growth.
The latest results and forecasts from retailers indicate that U.S. consumer spending is under stress due to increased living costs and existing debts, posing challenges for the retail sector during the back-to-school and holiday seasons.
Major U.S. retailers are returning to "just-in-time" inventory strategies after pandemic-related shipping problems, reducing inventories by 4% in the second quarter and putting themselves in a better position for the peak holiday season.
Americans continued to spend on dining out despite concerns about recession and inflation, with retail sales at restaurants and bars increasing by 11.8% in July and 9.5% in June compared to the same period last year, according to the Commerce Department. The strong consumer spending in this sector is seen as a positive sign for the economy and has been reflected in the earnings growth of restaurant companies.
US consumer spending increased by the most in six months in July, driven by strong demand for goods and services, but slowing inflation rates suggest that the Federal Reserve will keep interest rates unchanged next month.
Consumer spending in the US jumped 0.8% in July, the strongest monthly gain since January, driven by purchases of restaurants, live shows, toys, games, and recreational equipment; however, underlying data suggests that this spending may be on borrowed time.
Consumer spending is driving third-quarter GDP growth, but unsustainable spending habits, tightening lending standards, and the depletion of pandemic savings may lead to a decline in consumer spending in early 2024.
U.S. consumer spending increased in July, boosting the economy and reducing recession risks, but the pace is likely unsustainable as households dip into their savings and face potential challenges from student debt repayments and higher borrowing costs.
Concerns about a slowdown in consumer spending are present, but customers are still spending on technology and designer brands; however, if job levels cannot be maintained, there could be a corrective mode due to depleted savings.
British consumer spending growth slowed in August, despite a surge in cinema takings after the release of films like "Barbie", with spending on essentials such as food and fuel growing at its slowest rate since April 2020, pointing to a weakening economy.
U.S. manufactured goods orders experienced a significant 2.1% decline in July, the first drop in four months, due in part to higher interest rates impacting business equipment spending.
U.S. manufacturers reported a decline in business activity for the 10th consecutive month in August, but the declines are becoming less widespread, suggesting that the trough in the cycle may be approaching.
Consumer spending has remained resilient, preventing the US economy from entering a recession, and this trend will likely continue due to low household debt-to-income levels.
The US consumer is predicted to experience a decline in personal consumption in early 2024, which could lead to a potential recession and downside for stocks, as high borrowing costs and dwindling Covid-era savings impact household budgets.
Holiday sales in the United States are expected to grow at their slowest pace in five years, as consumers are cautious due to dwindling savings and concerns over the economy, with online shopping expected to be a bright spot.
U.S. retail sales rose more than expected in August due to higher gasoline prices, but underlying spending on goods slowed as Americans faced increased inflation and borrowing costs, while the trend in underlying spending on goods was not as robust as initially thought in July. Despite this, overall consumer spending is expected to remain strong, driven by spending on services.
US retail sales, excluding automotive, are expected to rise by 3.7% over the holiday shopping season, indicating a return to pre-pandemic levels of holiday spending, driven by a more normal inflation environment and consumers' willingness to spend on experiences, electronics, and dining out.
Consumer spending in the US grew at a weaker pace than previously estimated in the second quarter, indicating that Americans have been cutting back on their spending more than expected.
The PwC 2023 Holiday Spending Outlook reveals that 40% of consumers plan to spend more this year compared to last year, with Gen-Z leading the way in increased spending, while baby boomers plan to spend less; overall, the survey shows a positive trend of younger shoppers' willingness to spend more during the holiday season.
Spending by teens has decreased by 1% year-over-year and about 4% from the spring, with high inflation being a major concern and teens relying more on their parents and spending less, leading to predictions of a highly promotional holiday season.
The majority of American consumers are cutting back on both essential and non-essential items in response to inflation, with 92% reducing their spending, particularly on clothing, restaurants and bars, and entertainment outings; however, despite this, household spending in the US has actually increased by 5.5% compared to last year.
Despite concerns about a weakening consumer and dwindling excess savings, American consumers are still spending, with total card spending likely up 4.5% year-over-year over the past three months, according to Bank of America.
Seventy-three percent of Gen Z consumers in the US have reduced their spending due to inflation, with many choosing to cook at home, spend less on clothes, and cut down on groceries, while older generations have increased their spending, according to a Bank of America survey.
To avoid falling into debt during the holiday season, it is important to create a realistic budget, make a list of planned expenses, and resist the temptation of spontaneous purchases, according to financial experts.
Consumers are expected to spend an average of $1,652 on holiday-related purchases this year, up 14% from last year and surpassing the average spent in 2019, with non-gift purchases like decorations and home furnishings expected to see the biggest increase, according to a new report from Deloitte.
