Summary
A 0.3% increase in August retail sales was a surprise, but so was a revision that reduced last months’ sales by an even larger 0.4%. Five of 13 categories posted declines in August in a sign that the staying power of consumer spending is waning.
Objects in the rearview mirror are smaller than they first appeared
Retail sales rose 0.3% in August, but July’s sales were revised down by 0.4%. Excluding autos, the actual level of retails sales is lower in August than it was in June. The staying power of consumer good spending is at last losing momentum.
We have characterized spending during the summer months as one in which consumers are essentially price-takers and big spenders on the services side while being a bit more circumspect about prices and stingy with goods spending. That was not quite right in July as goods spending got a lift from Prime Day, but it was on the money here in August. Pulled-forward demand for durable goods is now translating into flat or slightly negative outlays for many goods categories like furniture stores, health and personal care stores and even high-flyers from the pandemic era like e-commerce, all of which were negative in August. In fairness, the e-commerce hit may reflect payback from July’s Prime Day and associated deals that drove sales for the non-store retailer category.
The category that broke the mold was motor vehicles and parts. Auto dealers saw a 2.8% pop in sales in August after a 2.0% drop in July. Brace for more of this sort of variability as supply chain dynamics inject even more volatility into a sales category that is already notoriously choppy.
We anticipate the economy entering a mild recession early next year and although we anticipated this retrenchment in consumer spending, this is not yet the start of the downturn. Consumer demand for services and experience-oriented spending remains intact, for now. This was evident in the 1.1% increase in spending in bars and restaurants.
