Americans still spend, but they spend smart

July retail sales data from the Census Bureau added to the emerging picture of continued US consumer spending even amid hyperinflation and bad sentiment. Retail sales for July were unchanged from June, but retail sales excluding autos and gasoline rose 0.7%.

“In one line: If you’re looking for stagnation, you won’t find it here,” Ian Shepherdson of Pantheon Macroeconomics wrote in a note to clients. “The July retail sales report showed that the American consumer is more willing to spend than you might expect if you spent too much time in the misery of a recession-obsessed media,” he said.

This stagnation mania has faded a bit over the past 10 days or so amid continuing signs of labor market strength, lower gas prices and signs that hyperinflation may be at its peak. (The latest weekly jobless claims fell this morning to 250,000, a sign that the labor market remains strong.)

“Summer and living are easy for consumers with most of them fully employed with the lowest unemployment rate in the nation’s history,” wrote economist Chris Robke of FWDBONDS. “They have salaries and they’re still spending it, maybe they’re a little reluctant to get more cars to come to a lot of dealerships.”

Falling gasoline prices have allowed consumers to spend these savings elsewhere as they spend wisely. The Walmart CEO and others said consumers are trading back, focusing on the essentials: less steak cuts, more low-cost chicken, hot dogs, and processed tuna. Many of the things they bought in the early days of the pandemic (dishwashers, sofas, PJ sets) they don’t buy now, and these are discounted like crazy (see target!) which is also good for savvy consumers.

The bank’s chief executives said in their earnings calls that checking accounts remain in good shape and household balance sheets are better than they were in the 2008-2009 crisis.

Goldman Sachs said this week that consumers have $2.2 trillion in Covid Relief still in their bank accounts, ready to be deployed.

But John Lear, chief economist at Morning Consult, tells me consumer power is uneven.

“We’re already seeing a disparity between high-income adults and middle- and low-income adults,” he said on CNN’s Early Start. “I think a lot of the spending growth that we’ve seen over the past year has been driven by people earning $100,000 or more per year.”

This may be why consumer surveys and opinion polls show that the public feels bad about the economy. And no one guesses how long a super consumer can keep flexing his muscles. Higher interest rates will make financing a new car, home, student loan, or credit card debt more expensive. The Fed is expected to continue raising interest rates to try to cool inflation, making debt more expensive in the coming months.

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