U.S. consumers are still spending their paychecks
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Maura Losch/Axios
Consumers keep defying jitters about the health of the economy.
Why it matters: The labor market is slowing, judging by the summer drop-off in job opportunities. But those getting paychecks are still spending them, rather than preemptively hoarding cash. That bodes well for avoiding a steeper downturn.
Driving the news: Retail sales rose 0.1% in August, beating economists' predictions that sales would drop after strong growth in July.
- That followed strong shopping activity earlier in the summer: The Census Bureau said retail sales rose 1.1% in July, a tick higher than initially estimated.
What they're saying: "This is a decent reading that once again confirms consumers are spending more prudently, but not retrenching amid elevated prices and rates and reduced labor market momentum," EY-Parthenon chief economist Gregory Daco wrote in a note.
Zoom in: The latest data, which is not adjusted for inflation, showed a pullback in spending at gas stations, electronics shops and department stores, among other categories.
- Spending picked up most for online retailers, health and personal care stores and retailers in the miscellaneous category (florists, pet supply stores and more).
- The report largely focuses on goods spending, with just one category in the services sector: restaurants and bars, where sales were flat in August. A more complete snapshot of service sector spending comes later this month.
- The so-called "control group" — which excludes auto, gasoline and building materials — that feeds into the spending category of GDP rose 0.3% after a 0.4% increase the prior month.
The big picture: Anecdotes from retailers show a slowdown in spending among lower-income consumers who feel the pinch from inflation, especially as pandemic-era savings dried up.
- But the richer households that make up the bulk of overall spending face less hardship — they are more likely to benefit from financial market gains or appreciating home prices.
What to watch: "The question for consumer spending is how long those higher income households can offset a moderation in spending growth from lower income households," ING chief economist James Knightley wrote in a note.
- "If the jobs market is cooling as rapidly as some of the hiring data suggests and unemployment fears start to build, it may not be all that long," Knightley adds.
The bottom line: For now, the U.S. consumer is keeping the expansion rolling along, despite rising labor market worries.
