Surprise jump in retail sales casts aside recession fears

Americans are still spending big — on cars, appliances and furniture — in a surprise burst of activity that is propelling the U.S. economy and helping shake off fears of an impending downturn. Retail sales rose 1 percent in July, reversing a June slowdown and marking the largest jump in more than two years, according to Commerce Department data released Thursday. Earlier in the day, Walmart, the country’s largest retailer, reported stronger-than-expected earnings and lifted its forecasts for the rest of the year, citing continued consumer resilience. “Everybody’s trying to talk down the economy, but pay attention to what people are doing: They are increasing their spending,” said Gus Faucher, chief economist at PNC Financial Services Group. “That’s an indication the economy remains solid.” Advertisement The upbeat reports, on the heels of an encouraging inflation snapshot this week, helped assuage investors’ fears of an imminent recession. Those elevated borrowing costs have slowed key parts of the economy, such as housing and manufacturing, helping bring down inflation from a peak of 9.1 percent two summers ago to 2.9 percent in July. The economy’s resilience and easing inflation are hot topics in the presidential election, with both Vice President Kamala Harris and former president Donald Trump laying out economic plans this week. Advertisement “Consumers are still spending, but they’re also being more selective,” said Diane Swonk, chief economist at KPMG. “They’re saying ‘I’ve had it with high prices’ and are making trade-offs where they can.” Share this article Share Although Americans emerged from the height of the pandemic flush with extra cash, they have more than burned through that money. A new report from the Federal Reserve Bank of San Francisco shows that despite a spike in liquid wealth in 2020, U.S. households are now in worse financial shape than they would’ve been if the coronavirus crisis hadn’t happened. Middle- and lower-income households, for example, had about 13 percent less in liquid wealth at the end of March than they would have if pre-pandemic trends had continued, bank researchers found, adding that there has also been a “notable increase” in credit card delinquency rates as people draw down their savings. Advertisement “Smaller financial cushions and heightened credit stress … pose a risk to future consumer spending growth,” the report found. Despite those headwinds, economic spending data has largely remained rosy, in part because the wealthiest Americans drive much of the country’s economic growth. Consumer spending makes up roughly 70 percent of the U.S. economy, and, within that, the top 20 percent of households account for roughly 45 percent of overall spending, according to estimates from Morgan Stanley. “Low- and middle-income households are feeling the brunt of high inflation, but the lion’s share of U.S. consumer spending comes from the wealthiest consumers,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “And they’re still out there, juicing the economy.” That growing gap is evident at some of the country’s largest companies. Walmart’s improving sales, up 4.8 percent in the most recent quarter, were in large part because more high-income households were shopping at the discount retailer to save money. Advertisement Meanwhile, Disney this month attributed disappointing earnings to “a moderation in consumer demand” but noted that while lower-income consumers are “feeling a little bit of stress,” wealthier ones are doubling down on international travel. The Vacationeer, a Disney-focused travel agency in Florida, has seen a drop-off in demand for theme parks and other “land-based” entertainment, owner Jonathan de Araujo said. “If I were only selling Disney World tickets, my sales would be down this year,” de Araujo said. But it’s not like those sales have evaporated; there are plenty of people who are still spending.” In Portland, The Fulton House Bed & Breakfast is having a banner summer. – This Summarize was created by Neural News AI (V1). Source: https://www.washingtonpost.com/business/2024/08/15/retail-sales-consumer-spending-walmart/