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Consumer to Economy: We (Might) Have A Problem

US Economy Retail Sales

Image source: mandritoiu / Shutterstock.com

What's going on?

We’ve been reporting a lot about the importance of the average American (a.k.a. the “consumer”) to the world’s biggest economy (and, thus, their importance to the global economy). Recently, the news has been relatively good, but on Friday data showed that retail sales (e.g. sales of running shoes, household accessories, etc.) did not increase versus June.

What does this mean?

Retail sales had climbed for each of the previous three months, so one month of flatlining growth isn’t the end of the world. Also, this sort of data is notoriously volatile, so we’ll have to see if the figure gets adjusted in the coming months (as it often does). But it does speak to the concern that the US consumer might not be able to keep holding up the economy. In the second quarter, economic growth fell short of expectations largely due to weakness from businesses (e.g. not re-stocking inventories as much as expected). If the consumer starts to falter, expectations for third quarter economic growth could get downgraded pretty quickly.

Why should I care?

For the markets: Lots of companies rely on consumer spending.

Last week, department stores like Macy’s and Nordstrom beat (very low) profit expectations – clearly consumers’ willingness to buy things is important for such firms. This week, we’ll hear from Walmart and Home Depot, who also depend on the consumer. Their performances will shed further light on the overall health of the US consumer.

For you personally: “Discretionary” spending is getting the squeeze.

Healthcare and housing costs (e.g. rent) have increased more quickly than pay and inflation in recent years in the US. Those are things that people pretty much have to pay. So retailers are facing increased competition for consumers’ money (discretionary spending) from things like rent and healthcare costs – although increased employment coupled with prices that are increasing more slowly than wages should support consumer spending. This is, at least, partially true in other countries as well, like Britain and parts of Europe.

Originally posted as part of the Finimize daily email.

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