Kiplinger Retail Outlook: Consumers Keep Spending, but…
Strong retail sales gains appeared across the board, but tighter budgets are coming.
Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
Retail sales excluding gas and autos rose by a modest 0.25% in September, but that tepid gain was expected, given the strong 1.1% surge in August. Some sectors kept their momentum going, while others pulled back. Those that saw continued healthy gains in September include furniture (sales up 1.3%), electronics and appliances (0.6%), groceries (0.5%), and health and personal care (0.7%). Sectors that were nearly flat or declined after robust August gains were clothing (0.0%), sporting goods, hobbies and books (-0.5%), general merchandise (-0.1%), miscellaneous goods (-3.0%) and e-commerce (0.3%). Total in-store sales were flat for the month, but were 3.3% higher than a year ago.
Motor vehicle sales rose a modest 0.2%, and are up 2.6% over the past 12 months. Restaurant sales have been climbing strongly for six months in a row, rising 1.1% in September. Spending on services excluding dining grew a healthy 0.4% in August, a typical increase. (August is the latest month for which services spending data other than dining are available. September data will be available on October 29.)
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The holiday sales season still looks good, with growth better than last year’s increase. Holiday sales are likely to grow 4% when you exclude autos, gas and restaurants, and 3% when counting in-store sales. But a number of issues could start wearing on consumers. Rising gasoline prices could be a drag on overall sales, since drivers have less cash left over after filling up their tanks these days. Consumers’ savings rate has taken a step down this year, though it is not worrisome yet. At some point, folks will probably start putting more money in the bank, which means less spending. Also, interest rates on consumer loans will tick up after the strong rise in medium- and long-term bond yields seen in recent months. The Federal Reserve’s decision to start raising short-term interest rates will also have some effect, since other short-term rates for borrowing follow, such as those for home equity lines of credit.
However, consumers keep surprising analysts with their willingness to spend, despite consumer sentiment measures that keep trending down. The large increase in restaurant spending this year is a strong indicator that consumers are not tapped out yet, since presumably consumers would start cutting back on eating out early on if they felt their budgets getting tight. Perhaps the lingering effects of past stock market gains are enabling higher-income households to power through this period of uncertainty and elevated inflation.
Related content
