Consumers are Pessimistic, But Retail Spending Improves Anyway
Retail sales were up 0.5 percent in July, its strongest gain since March, according to the Census Bureau. Year-over-year growth in retail sales was 8.5 percent. The auto sector has been hard hit by supply chain disruptions this year, but it appears to be regaining some strength, increasing 0.4 percent between June and July. Even with these challenges, though, motor vehicle and parts sales have risen 8.1 percent over the past year.
Other sectors which experienced strong gains in retail sales in July include miscellaneous retail store retailers (up 2.4 percent), gasoline stations (up 1.6 percent) and electronics and appliance stores (up 1.4 percent). The improvement of gas station sales is notable as it had fallen in June with lower petroleum prices. Sectors with lower sales in July were sporting goods, hobby, book and music stores (down 1.5 percent); department stores (down 0.8 percent) and building material, garden equipment and supply dealers (down 0.4 percent).
Overall, these numbers suggest that consumers are picking up their spending somewhat, albeit not at the levels seen earlier this year. They also suggest that Americans are being careful with their purchases. While gas station sales and food and beverage store sales are up around 24 percent and 8 percent year-over-year, respectively, many other sectors have seen only slight growth over the past year, such as department stores (up 0.4 percent), electronics and appliance stores (up 0.4 percent) and furniture and home furnishings stores (up 1.1 percent). This reflects the trade-offs that many people are making with their budgets.
Contrasting the improvements in spending, though, are the dismal consumer sentiment figures released today by the University of Michigan and Reuters. The Index of Consumer Expectations fell from 63.7 in July to 54.9 in August. Stock market volatility, weak employment growth, and political jockeying have clearly had an impact on individual attitudes about the economy. In May, the Index was 74.3; therefore it has fallen by more than 19 points in just three months.
Consumers were asked about current and future economic conditions, and their sentiment fell for both. However, it was the measure of expected conditions in the next few months that fell the most, plunging to 45.7 from 56.0 in July and 71.6 in February. The expectations measure is the lowest that it has been since 1980.
In terms of inflation, consumers expect to see 3.4 percent increases in prices over the next year, which was unchanged from the previous survey.
In short, these two studies find that American consumers are increasingly pessimistic, yet they have started to increase their spending. The rising anxiety is not surprising given much of the bad economic news over the past few weeks.
We will see if this impacts the August retail numbers when they are released next month. In the meantime, it is clear that while the consumer has been more careful with his or her spending in light of uncertain economic times, they feel comfortable enough to selectively venture out to make some purchases that are non-essential, such as automobiles and electronics.