Main Topic: U.S. consumer confidence increases to a two-year high in July, but mixed signals persist.
Key Points:
1. Consumers remain fearful of a recession due to interest rate hikes.
2. Consumers plan to buy motor vehicles and houses, but fewer anticipate purchasing major household appliances.
3. Consumers intend to spend less on discretionary services but expect to increase spending on healthcare and streaming services.
### 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.
Former Toys "R" Us CEO Gerald Storch warns that the upcoming holiday season will be very difficult for retailers due to persistent inflation, as consumers face rising prices, interest rates, credit card debt, and student loan burdens.
Canadian retail sales rose more than expected in June, indicating a rebound in activity, particularly in the motor vehicle and parts dealers, sporting goods stores, and gas stations sectors, while spending on rate-sensitive products like furniture contracted.
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.
Online retailers are advised to use discounts, customer-friendly return policies, and AI tools to capture sales during the upcoming holiday season as global online sales are predicted to reach $1.19 trillion, with the US accounting for $273 billion, according to Salesforce's holiday forecast.
Despite overall solid consumer spending, retail earnings reports indicate a shift towards more cautious shopping habits, with lower-income shoppers feeling economic pressure and opting for essential items and discounts at off-price and discount retailers. Delinquencies on department store credit cards are rising, suggesting a stretched consumer, and retailers are bracing for the impact of the resumption of student loan payments on shoppers' budgets. The upcoming back-to-school season and Halloween will serve as indicators for the rest of the year and the holiday season.
Labor Day is approaching, and many retailers have already started their sales, offering discounts on accessories, shoes, basics, and more.
Australian retail sales rebounded in July, but the annual rate slowed, indicating that high borrowing costs are slowing consumer spending and not affecting the outlook for interest rates.
Despite initial concerns, some malls in America have experienced a recovery from the pandemic-induced decline in consumer activity, with more stores opening than closing in 2022 and an 11% increase in sales, according to a report from Coresight Research. Mall occupancy rates have also increased, and traffic levels have risen, indicating a positive outlook for physical retail.
According to a survey by Jefferies, 50% of consumers in the US plan to spend more on back-to-school shopping this year, with 70% citing inflation as the primary reason for increased spending, particularly on apparel; Walmart's private label business is expected to benefit from this trend.
Retail earnings indicate a slowdown in consumer spending for late 2023, causing investors to be uncertain about the direction of the market and retailers to consider discounting to attract budget-conscious consumers.
Pending home sales in the US rose by 0.9% in July, marking the second consecutive month of growth, despite high prices and increasing mortgage rates, with the rise attributed to an expanding job market and the potential for further increases given the number of failed offers; however, year-over-year pending transactions fell by 14%.
Consumer spending in China rebounded in August, with all categories, including apparel, automotive, food, furniture, appliances, and luxury, experiencing increased sales compared to July, according to a survey by the China Beige Book. Retail sales in July rose by 2.5% year-on-year, raising concerns about China's economic growth, but the August survey showed a surge in spending, particularly in the services sector, which saw continued strength in travel and hospitality. Additionally, corporate borrowing increased as the cost of capital declined, indicating a boost in business activity. However, China's property sector continued to worsen, with house prices barely growing and home sales declining.
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 prices in the US rose 0.2% from the previous month, and 3.3% annually, indicating persistent high inflation and posing a challenge to the Federal Reserve's efforts to curb it; core prices, which exclude food and energy, also increased 0.2% from the previous month and 4.2% from the previous year.
Retail sales in the UK increased by 4.1% in August, with non-food items experiencing the strongest growth due to higher spending on health and beauty, although clothing and footwear sales were weaker; however, the increase in sales was partly driven by rising prices, indicating that consumers are buying fewer items but spending more.
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.
Retail sales in the US remained resilient in August, with a 0.6% month-on-month increase, surpassing expectations of 0.2%, indicating a positive trend for the economy.
August retail sales in the US exceeded expectations, with a 0.6% increase driven by higher gas prices, although underlying goods and services spending lost momentum and July's gain was revised lower, according to the Commerce Department.
Retail sales in the US rose 0.6% in August compared to July, but the increase in gas prices could impact consumer spending during the holiday shopping season, according to a report from the Commerce Department. Excluding gas sales, retail sales only increased by 0.2% in August.
US retail sales have exceeded economists' expectations for the second consecutive month, with higher gas prices being a contributing factor.
Holiday retail sales are expected to increase in 2023 despite slowing growth, with inflation moderating and e-commerce playing a significant role.
U.S. consumers have significantly reduced their spending over the past six months and plan to continue doing so during the upcoming holiday season, with the majority cutting back on non-essential items and essential items.
Despite strikes and high interest rates, analysts expect new vehicle sales in the U.S. to continue growing, with an estimated annualized pace of 15.5 million in September, along with positive sales growth forecasts for general motors, Toyota, Ford, and Honda.
Online retailers are projected to offer record-setting discounts this holiday season, with online sales expected to increase by almost 5% from last year, according to Adobe Analytics. Consumers are expected to take advantage of these deals and spend $221.8 billion in online shopping, with toys, electronics, and apparel being the hottest sellers and discounts reaching up to 35% off listed prices.
Retailers are starting their holiday sales events earlier than ever as consumers try to manage high prices, record credit card debt, and the resumption of student loan payments, with experts offering mixed predictions for the holiday season.
Around 74% of American holiday shoppers expect their gift spending to remain steady or increase compared to last year, with 55% anticipating equal spending and 19% planning to spend more, while 26% anticipate spending less, according to a survey by Shopify and Gallup. The survey also revealed that 78% of 18- to 29-year-old shoppers expect to spend at least as much as last year, and online shopping is projected to be popular, with 93% planning to make holiday purchases from online retailers.
U.S. retailers are importing goods at a similar rate to 2019 as consumer patterns normalize, indicating that consumer spending has held up better than expected despite rising prices and increased expenses, according to a report by Descartes Systems Group. This shift towards "just-in-time" inventory strategies suggests that retailers are importing based on signals from consumers rather than stockpiling goods in advance.
Consumer prices in the US rose by 0.4% in September, slightly surpassing expectations, with the consumer price index (CPI) rising by 3.7% compared to the previous year, higher than the estimated 3.6%.
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.
Inflation is at 3.7% despite efforts to lower it to 2.0%, and retailers are using tricks like percentage discounts to hide the true value of discounts from consumers.
Persistently high inflation in the US has led to a 7% decrease in consumer sentiment in October, with concerns over inflation impacting personal finances and expectations for future inflation rising to 3.8%.
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.
September retail sales exceeded expectations for the third month in a row, indicating that consumer spending is still robust.
Sales at U.S. retailers increased by a larger-than-expected 0.7% in September, driven by strong demand at auto dealers and online stores, indicating that households have sufficient buying power to support economic growth.
U.S. retail sales in September exceeded expectations due to increased purchases of motor vehicles, restaurant visits, and bar spending, indicating a potential acceleration in economic growth in the third quarter, but also raising concerns of a Federal Reserve interest rate hike in December.
The strong performance of the US consumer, with retail sales rising 0.7% in September, could lead to more Federal Reserve rate hikes and upside risks to inflation entering the fourth quarter of 2023.
US retail sales in September exceeded expectations, rising 0.7% from the previous month, suggesting that consumer spending remains strong and could lead to more rate hikes by the Federal Reserve.
Despite inflationary pressures, American consumers continue to spend, with September's sales reaching $704 billion, a 3.8% increase from the previous year, indicating a healthy consumer outlook for the upcoming holiday season.
September's retail sales report exceeded expectations, indicating strong consumer spending, and real retail sales growth on an annualized basis is a positive sign for a return to normal economic growth.
Americans increased their retail spending in September despite concerns about inflation, high interest rates, and a potential economic recession, with retail sales rising 0.7% from the previous month, according to the Commerce Department.
