Consumer Spending Promising Despite Slow Summer Sales

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During the last month of summer, Americans enjoyed grilling at home and dining at restaurants but cut back on shopping. While the slowdown in spending has nudged us to lower our outlook for retail sales, continued strength in spending on food and services still signals a confident consumer. We see retail and food services sales (excluding gasoline sales, which significantly fluctuate because of volatile prices) rising 3.4% in 2017, similar to 2016’s growth.

Consumer spending dropped 0.3% in August compared with the month before, with consumers shelling out about $456 billion on retail and food services. Americans spent more on food and drinks, both at home and in restaurants, a sign that shoppers do have money to spend. “The consumer is in a good place and will continue to be the driving force of the economy,” said Eugenio Alemán, senior economist at Wells Fargo.

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Receipts fell for most retailers in August. Consumers cut spending on everything from furniture and car parts to sports equipment and books. Department stores again took a beating, with sales tanking 5% versus 2015. The slowdown in automobile purchases kept a lid on overall sales, with little growth in the number of folks heading to dealerships to buy new rides, a trend we expect to continue into 2017. The market is fairly saturated after a record sales year in 2015.

Sales of building materials and garden supplies dipped from July, but overall the bustling housing market is keeping home improvement stores busy. Sellers of such merchandise saw receipts rise 2.2% compared with August 2015, as more folks spruce up their homes to get them ready for sale.

There were some bright spots across retail. Restaurant sales grew 0.9%, and clothing store sales ticked up 0.7% from the month before as parents geared up to send their kids back to school. Grocery stores saw a modest 0.4% uptick in receipts.

Although shoppers cut back their spending online in August compared with July, e-commerce continues to see consistent year-over-year growth. During the last month of summer, sales at nonstore retailers, which include online sellers, jumped a staggering 10.9% compared with 2015. Meanwhile, health and beauty stores’ registers continue to ring, with sales up 7.8% versus last year.

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Source: Department of Energy, Price Statistics