Kiplinger Retail Outlook: Blowout August Spending as Consumers Keep Surprising
Strong retail sales gains appeared across the board, but tighter budgets are coming.
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The expected August rebound in retail sales turned out to be unexpectedly strong. Sales excluding motor vehicles and gasoline rose 1.2%, with nearly all categories showing good growth. Notable were a 2.6% gain by e-commerce, a 1.9% jump at miscellaneous stores, a 1.6% gain at electronics and appliance stores, and a 1.2% gain at sporting goods and hobby stores. All in-store sales rose 0.6% for the month, and 3.7% over the past 12 months.
Motor vehicle sales rose a moderate 0.6% in August, a more typical gain after a seesaw June and July. Restaurant sales have been climbing strongly for five months in a row, rising 1.2% in August. Spending on services excluding dining grew a healthy 0.6% in July, a typical increase. (July is the latest month for which services spending data other than dining are available. August data will be available on September 30.)
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The fly in the ointment: Rising gasoline prices may be a drag on retail sales this fall. Savings rates are low, and households may need to rebuild their bank accounts by curbing their discretionary spending. The savings rate has already begun to rise, from a low of 2.6% of disposable income in June to 3.0% in July. Look for that rate to rise further, as it averaged 4.6% last year. A return to 4.6% would translate to about $400 billion that is saved and not available for consumer spending, equal to 1.2% of GDP. Finally, a tick up in interest rates on consumer loans will result from the strong rise in medium- and long-term interest rates this month. The Federal Reserve’s decision to start raising short-term interest rates will also have some effect, since it raises rates for borrowing from home equity lines of credit, for example.
However, consumers keep surprising analysts with their willingness to spend, despite consumer sentiment measures that keep trending down. Perhaps the lingering effects of past stock market gains are enabling higher-income households to power through this period of uncertainty and elevated inflation.
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