US Retail Spending Shows Resilience Amid Economic Uncertainty

In August, spending at US retailers rose by 0.1% from the previous month, according to the Commerce Department’s report on Tuesday. Although this increase is slower than July’s revised 1.1% gain, it surpasses the 0.2% decline projected by economists in a FactSet poll. These figures are adjusted for seasonal variations but not for inflation.

This uptick in retail spending is a positive indicator for the US economy, as consumer spending accounts for two-thirds of the nation’s economic output. Retail sales constitute a significant portion of this spending.

Impact on Federal Reserve’s Interest Rate Decision

Tuesday’s report is the last major economic release before the Federal Reserve’s anticipated interest-rate announcement on Wednesday. Despite the new data, it is unlikely to significantly influence the expected rate cut. The debate continues over whether the Fed will implement a quarter-point or a larger half-point rate cut.

Job Market Concerns

The health of the US economy, particularly the job market, is a primary concern for both the Fed and Wall Street. Employers are hiring fewer workers, and job seekers are finding it increasingly difficult to secure new positions. The unemployment rate has risen from 3.8% a year ago to 4.2% last month.

A weakening job market could lead to a sharp decline in consumer spending, posing a threat to the US economy. Businesses might need to adjust their hiring plans, potentially creating a negative feedback loop where reduced consumer spending leads to more layoffs. The Fed could intervene by lowering borrowing costs to mitigate this risk.

Consumer Spending Trends

Despite consumer spending remaining above pre-pandemic levels, recent surveys indicate a slight pullback in the coming months. In August, a survey by the Federal Reserve Bank of New York reported a 5% annual increase in nominal household spending, up from 4.6% in April. However, the median expected monthly overall spending growth slowed to 3% last month, down from the 5.4% high in April 2022 but still above 2019 levels.

A separate survey from Bank of America released on Friday echoed these findings, showing a reduction in spending expectations from May 2024 over both three- and 12-month horizons.

Consumer Behavior Shifts

Robert F. Ohmes, a research analyst at Bank of America Securities, noted that consumers are becoming more discerning about their spending. This shift is more about reallocating their budgets rather than fears of unemployment. For example, food prices have increased by 27% over the past five years, while incomes have only risen by 15%, forcing consumers to cut back on other expenses.

Moderating Food Price Inflation

Food price inflation has significantly moderated over the past year. As of August, grocery prices were rising at an annual rate of 0.9%, aligning with the average increase seen in 2019, according to the Bureau of Labor Statistics.

In summary, while the US retail sector shows resilience, the broader economic outlook remains uncertain, with the job market and consumer spending trends being closely monitored by the Federal Reserve and economic analysts.

Source: CNN.com