Retail sales, a metric that measures consumer spending on various everyday items such as cars, food, and gasoline, experienced a 0.3% rise in November, according to the Commerce Department’s recent report. Last month, sales excluding the more volatile categories of gasoline and autos increased by 0.6%. However, it’s important to note that the November advance does not account for inflation, indicating that consumers might be spending the same amount while getting less value for their money.
Consumer Spending Remains Resilient
“Today’s data suggests the U.S. economy – particularly the consumer sector – is still moving forward,” commented Chris Larkin, managing director of trading and investing at E*Trade from Morgan Stanley. He further added, “For now, though, the ‘soft-ish’ landing scenario remains in place.”
Despite economic uncertainties, consumers continued to spend at grocery stores, car dealerships, health and personal care stores, as well as restaurants and bars. This demonstrates resilient discretionary spending. Additionally, online shopping continued to gain popularity, with spending at non-store retailers increasing 1% compared to the previous month. However, consumers reduced their expenses at gas stations, electronics and appliance stores, building material and garden stores, and miscellaneous retailers.
Potential Challenges Ahead
A strong job market and significant wage increases have contributed to the buoyancy of consumer spending in recent months, even in the face of high inflation. However, economists predict that consumer caution may grow as student loan repayments resume and high-interest rates persist. Furthermore, a larger number of Americans now rely on credit cards to cover essential expenses. Consequently, credit card debt has reached a new record in the third quarter, accompanied by a rise in delinquencies.
Despite these potential challenges, the unexpectedly positive data suggests that consumers remain robust at present, notwithstanding the prevailing economic headwinds. However, Lydia Boussour, EY senior economist, cautions that moving forward, “we expect the combination of cost fatigue, rising debt servicing burdens, and tighter credit to weigh on spending in the first half of 2024.”