Consumers Embrace Summer Deals and Holiday Travel
Analysts anticipate that retail sales data from the Census Bureau, set to be released on Tuesday, will reveal a 0.4% increase in July compared to June's 0.2% growth. This would mark the fourth consecutive month of expansion and support the expectation of a "robust" report, as projected by Aditya Bhave, a U.S. economist at BofA Securities. BofA's analysis of spending via credit and debit cards indicates a notable rise in household expenditure across various categories, such as airlines, general merchandise, and gasoline.
Online retail sales have experienced significant growth, which is unsurprising given the multitude of summer sales events. In addition to Amazon.com's Prime Day, retailers like Target, Walmart, and Macy's all presented enticing deals throughout July. Notably, consumers spent over $12 billion on e-commerce purchases during July 11 and July 12 alone, representing a 6.4% increase from the previous year, according to Adobe Analytics.
Brick and mortar stores also saw an uptick in foot traffic during July. Visits to retailers rose by an average of 7% compared to the previous year. This surge surpassed the respective average gains of 4.4% in June and 5.5% in May, as reported by TD Cowen.
Consumer spending received additional support from a positive overall economic assessment. In July, consumer sentiment reached its highest level in nearly two years, thanks to declining inflation figures.
The Summer Spending Surge: Will it Continue?
As summer comes to an end and the weather begins to cool, economists and analysts are predicting a potential slowdown in consumer spending for the second half of the year. With this in mind, July's retail sales reading takes on increased importance.
If sales come in weaker than expected, it could be an indication that consumers are already starting to pull back. While this may not be great news for retailers, it could be seen as favorable for the Federal Reserve in their ongoing battle against inflation.
Although an imminent downturn is not yet on the horizon, experts believe that the impact of rate hikes could start to have a contraction effect on consumer spending as early as the fourth quarter of this year. This prediction comes from Chris Senyek, the chief investment strategist at Wolfe Research.
There are already some signs that shoppers are exercising caution, including reduced spending on back-to-school items and fewer instances of dining out. As we enter retail earnings season, which begins this week, it will become clearer if consumers are indeed becoming more reserved in their spending habits.
While a slower pace of consumer spending may pose challenges for the economy, it could also help the Federal Reserve bring inflation back to its desired 2% target without sparking a full-blown recession. This scenario, often referred to as a "soft landing," would be seen as an ideal outcome.
Jack Kleinhenz, chief economist at the National Retail Federation, acknowledges that the economy has shown resilience in the first half of the year and that the consumer environment has been positive due to slowing inflation. However, he also recognizes ongoing economic challenges and questions, with consumer spending growth gradually slowing down.
In conclusion, while the summer brought about a surge in spending, there are concerns that this trend may not continue as we head into the latter half of the year. The broader slowdown in consumer spending predicted by economists and analysts raises questions about the future trajectory of the economy and the Federal Reserve's ongoing fight against inflation.
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