Retail sales growth expected to dip as high prices strain US consumers

American consumer spending is expected to slow, as people face the high cost of living and increasing anxiety about the job market. Delayed for more than a month by the government shutdown, new September retail figures are expected to be released this week by the Census Bureau.

The figures are likely to indicate slowing momentum in consumer spending — perhaps an indication that, after months of being clobbered by inflation, households may have reached their limit.

Retail sales are projected to rise by 0.4% in September, a more modest increase than the 0.6% rise in August, analysts say. The slight dip may be the initial sign of a more sustained pullback after solid summer spending. That support is unlikely to continue as financial strains intensify, economists said: The earlier spike in demand buoyed third-quarter economic growth.

High prices are driving shoppers to cut back

Inflation has moderated from the extremes of 2022, but prices for many everyday staples are stubbornly high. For millions of Americans, this has translated into budget constraints at a time when wages have been slow to keep pace. Groceries, rent, gas, and household utilities still account for a greater share of household income than they have in 50 years; there is barely any substance left for discretionary spending.

New research from the University of Michigan now highlights this stress. Consumers are now reporting the gloomiest outlook for their personal finances since 2009, driven by a combination of high prices and stagnant savings. Worries about job loss, too, have risen to a five-year high — an indication that households may be close to shifting from cautious spending to full-on belt-tightening.

The gap between incomes is growing. Wealthier consumers, buoyed by a booming stock market, remain comfortable spending. Retail behemoths like Walmart and Gap have posted robust quarterly sales, in part by drawing more affluent customers who appreciate value or discounts.

However, for those at the lower end of the income scale, the situation is quite different. Home improvement retailers, including Home Depot, say customers are delaying larger purchases and putting off home renovations. Together, the trends tell a clear story: Even if Americans want to spend, many cannot afford to stretch their budgets further.

Labour market woes to hurt spending growth

The American labor market, a key source of economic strength, is cooling down. Hiring is slowing as business owners become more cautious. Several firms are cutting costs by slowing down hiring and investment, or using automation to reduce labor costs.

The release of the Federal Reserve’s Beige Book later this week, which covers October and early November, is expected to confirm the softening of the economy. Analysts anticipate reports of more tepid hiring, a pullback in business activity, and increased wariness in numerous sectors.

Economists at Bloomberg write that labor conditions edged up slightly after hitting a low point in the summer. However, the partial shutdown of the federal government in October created a new hole in hiring and consumer spending. These disappointments have reignited calls for the Fed to lower interest rates at its December meeting, and some experts argue that a rate cut may help support an increasingly vulnerable recovery. 

There will also be several important economic indicators on the calendar. The producer price index for September, durable goods orders, and weekly jobless claims will provide a more comprehensive view of the economy’s health as it enters the Thanksgiving holiday.

Now, retailers are preparing for Black Friday — that one day that is likely the biggest shopping day of the year. While big brands gear up for a sales spike, early signs suggest that consumers may be entering the holiday season with unease not seen in recent years.

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