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Discounts Doing Little To Lift Americans' Spirits And Spending

Published on Jul 16 2017 3:20 PM in Retail tagged: Trending Posts / USA / Consumer Spend

Discounts Doing Little To Lift Americans' Spirits And Spending

Americans experienced lower costs last month for some services, as well as cheaper merchandise that limited receipts at retailers and showed a weaker trajectory for consumer spending entering the third quarter.

While economists projected a slight increase, consumer prices were little changed in June – held back by cheaper home furnishings, cars and clothing. Households also enjoyed modestly priced airfare and hotel stays at the start of the summer, Labor Department data showed.

The discounts on merchandise may partly explain why the Commerce Department’s data on retail sales, which aren’t adjusted for prices, unexpectedly decreased for a second month.

The back-to-back decline in retail sales, the first since July-August of last year, also shows that consumers remain hesitant to ramp up their spending as the economy enters its ninth year of expansion.

Cautious Consumers

'Consumers are cautious to spend, despite the positive backdrop of upbeat job gains, rising – albeit sluggish – wage growth, and low interest rates,' Gregory Daco, chief US economist at Oxford Economics, wrote in a research note. 'Weak consumer spending in June means that momentum heading into the third quarter is fairly soft.'

Evaporating consumer optimism suggests moderation at the cash register as well. Sentiment weakened in early July to a nine-month low, according to figures released from the University of Michigan. The latest decline shows post-election buoyancy has been erased amid Washington gridlock around health care and tax legislation.

These reports leave Federal Reserve policymakers in a tricky spot. While the central bankers have signalled a willingness to continue a gradual upward adjustment in the Fed’s benchmark interest rate, the consumer-price index data called into question what some central bankers have described as a "transitory" slowdown in inflation.

The costs of merchandise excluding food and fuel dropped 0.1% in June. So-called 'core-goods inflation' has declined in 14 of the last 16 months.

While not alarming, the slowdown that’s kept inflation below the 2% goal threatens to put a pause on monetary-policy tightening, even as the labour market chugs along solidly.

Several consumer-price categories experienced a third straight decline in June. What’s more, retail demand isn’t exactly gangbusters, especially in light of robust job growth. Seven retail categories showed a gain in sales last month, compared with 11 at the start of this year.

Brighter prospects might depend on whether wage growth exceeds Americans’ paltry expectations. While consumers registered high marks for their current financial conditions, according to the University of Michigan’s sentiment report, survey respondents see a rocky road ahead for their pocketbooks. An index of the outlook also slumped, leading to the widest gap between current conditions and expectations since August 2006.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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