Kiplinger's Retail Outlook: Consumer Spending Likely to Ease

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last updated 18 September 2023

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Retail and food service sales excluding gasoline rose 0.2% in August, maintaining the higher sales level of the Amazon Prime Day sale in July. Online sales were flat, and in-store sales rose 0.2%. Some of the impact of the July surge was taken away by a downward revision to June and July sales, but sales ex-gasoline have still risen at a 6.1% annual rate over the past five months. In-store sales have been growing more modestly, however, at only a 2.5% rate during that time.

August sales were good for clothing (+0.9%), electronics and appliances (+0.7%), and health and personal care (+0.5%) stores. Motor vehicle sales rose 0.3%. Sales declined for sporting goods and hobby (-1.6%), furniture (-1.0%) and miscellaneous (-1.3%) stores.

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Consumer spending on services has been growing steadily, rising 0.4% in July after adjusting for inflation. Even if the economy slows, services spending is likely to stay on its uptrend, because of the change in consumers’ buying patterns. Data on services spending are typically released at the end of each month, with the report for August being scheduled for September 29. (Only food services are included in the retail sales report discussed here.)

Strong consumer spending is keeping the economy out of recession, but we expect a slowdown soon. The economy in general is due to cool off in the next six months, with a gradually weakening labor market. Savings rates have been much lower than their historical norms, and will likely begin to rise slowly. Student loan repayments are starting up in October, and along with higher interest rates on consumer loans and rising gasoline prices, may take away from households’ spending power. But consumers have surprised analysts this year with the resilience of their spending, so any slowdown is not likely to cause a recession for now.

Goods spending is also due to slow eventually because, at some point, consumers will switch to buying more services as their need for goods becomes satiated. Purchases of goods soared at the beginning of the pandemic in 2020. While services have picked up since then, the share of goods in household spending is still well above its pre-pandemic norm. That suggests a coming drop in goods buying as the economy slows.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.