Will U.S. consumers keep the economy going?
For a couple weeks there, people were starting to worry about whether Americans would be able to keep spending money like they have been. In July, the unemployment rate popped up to 4.3% from 4.% a month earlier, and it turned out there were more people filing for unemployment than expected.
But Thursday, there was some reassurance from the good ole American consumer. The Census Bureau reported that retail sales were up 1% in July.
Collectively, we spent almost $7 billion more in July than we did in June.
“Consumers continue to spend,” said Gus Faucher, chief economist with PNC Financial Services Group. “We saw big increases in a lot of categories like appliances, home furniture, food and beverages. Restaurant sales were up. All of those types of things.”
And there’s a very good reason why people are still spending: They can.
“We have now had 15 consecutive months of positive, real wage growth, so even when factoring in inflation, people have been earning more than the increases in prices,” said Tuan Nguyen, an economist at RSM.
Not only that, but at least in the world of retail goods, inflation has actually been negative for most of the last year.
“Meaning, goods prices have decreased on aggregate,” Nguyen said. “This is evident from the shelves and online stores where we see more aggressive discounting and longer sales programs lasting all summer.”
But that discounting is also a sign that consumers’ tolerance of price increases has worn thin. That’s been on display at Walmart, which reported positive earnings today, said Blake Droesch, senior analyst at Emarketer.
“It’s actually experienced a boost from higher-income consumers that are looking to trade down and are visiting Walmarts instead of going to grocery stores that are maybe higher end,” Droesch said.
So yes, the consumer is in mostly good shape, but “the consumers also been very confused and choiceful, and looking for great values and low prices,” said Oliver Chen, head of retail and luxury goods at TD Cowen.
“The heat is on for every company to offer extremely clear value to customers,” Chen said.
So, expectations are the consumer will continue to lift the economy through this year, but not all sellers may enjoy the ride.
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