Americans bump up spending in June as inflation eases in a strong jobs market
Americans increased their spending last month as inflation eased in many areas and the job market remained remarkably strong.
Retail sales rose 0.2% from May to June, following a revised 0.5% increase the previous month, the Commerce Department reported Tuesday.
The figure matched the pace of consumer inflation in June from the prior month, underscoring that shoppers are just about keeping up with pricing pressures. While the headline number of 0.2% was a bit weaker than expected, economists on Tuesday were focused on the number that excludes volatile autos, gas, building materials and food services, which rose a solid 0.6% in June. That 0.6% figure is what is fed into the government’s measure of economic growth, and it’s a fairly strong spending number.
Shoppers increased spending at electronics stores and furniture and home furnishings stores after a recent pullback. Online sales also had a solid increase. But sales at grocery stores, gas stations and sporting goods stores fell. At restaurants, sales eked out a tiny increase.
The uptick in sales follows an increase in May that pointed to an economy that remains resilient despite rising prices. Yet spending has been volatile this year after surging nearly 3% in January. Sales tumbled in February and March before recovering in April and May.
Consumers are switching grocery stores, brands and ingredients as they try to cope with the cost of food.
“While they continue to spend, the June retail sales report suggests that consumers are becoming more thoughtful with their purchases,” wrote Oren Klachkin, U.S. economist at Oxford Economics. He pointed to the labor market losing some momentum, declining savings, and interest rates that have made borrowing money or using credit cards more expensive.
There is already early evidence of a pushback from consumers that is being reflected in financial reports from some of the country’s biggest food producers.
Consumers, whose spending accounts for about 70% of all U.S. economic activity, have been the engine behind the economic recovery from a slowdown during the pandemic. Government relief checks, the suspension of student loan payments and super-low interest rates helped.
Demand outpaced what factories could produce and what ports and freight yards could handle, leading to shortages, delays — and skyrocketing prices.
That gave companies “abnormal power to push up prices’’ and pass higher costs along to consumers — clout they hadn’t had for decades, Simon MacAdam, senior global economist at Capital Economics, wrote last month.
Any stigma of buying fashion secondhand is gone. Shoppers are running mini resale businesses as the investment value of certain luxury brands has soared.
That dynamic has shifted, however.
Low interest rates are long gone: The Federal Reserve began aggressively hiking rates in March 2022. The student loan payment moratorium — which allowed Americans to divert money that used to go to loan payments to dinners out and new furniture — ends later this year.
And the savings that Americans had stashed away at the peak of the pandemic — when they were receiving government relief checks and saving money while hunkered down at home — are vanishing. Fed researchers have reported that consumers depleted their excess savings in the first three months of 2023.
All of which means that consumers may no longer be willing — or able — to tolerate elevated prices as overall inflation dips.
U.S. data on prices, the most recent arriving last week, showed that consumer inflation reached its lowest point since early 2021 last month. Prices rose just 0.2% from May to June thanks to easing costs for gasoline, airline fares, used cars and groceries. Inflation is up just 3% over the last 12 months. But Americans still face surging prices for some goods and services as well, such as auto insurance.
Now that the Supreme Court has struck down President Biden’s loan forgiveness plan, companies are looking to offer student debt repayment as a benefit.
Ryan Dixon, who recently moved from Florida to a farm in Hillsboro, Tenn., said he didn’t notice prices increasing as much in 2020 and 2021 because of the COVID-19 relief payments he was getting from the government. But as that money ran low, it became clear that he needed to find new ways to cut spending.
Now, he keeps track of the coupons in the Target and Walmart apps, scours the grocery aisles for deals on meat and buys store-brand canned goods.
“I’m not buying Del Monte and Green Giant anymore. I’m buying the Walmart brand,” he said.
There are a handful of brands he loves and won’t substitute, such as his Mountain Dew sodas. But he is looking for cheaper alternatives almost everywhere else.
“I never thought I would shop like my mother,” Dixon said. “But if I don’t have a coupon for it, I don’t get it.”
Those kinds of everyday decisions are beginning to show up in the financial performance of major food producers.
Conagra Brands, which makes Slim Jim beef jerky and Duncan Hines cake mix, said during a fourth-quarter earnings call last week that smaller price increases have not translated to higher sales volume. That is a quick turn from the third quarter when price increases — which topped 15% that quarter — did not dent demand.
“It’s not a trade down within individual categories to lower-priced alternatives. It looks, optically, more like a cutting back and what I call hunkering down,” Conagra Chief Executive Sean Connolly told analysts. “And one thing I know for sure, people aren’t eating less. So they’re making choices to manage their budget.”
PepsiCo, which makes Mountain Dew, said last week that higher prices lifted the company’s revenue in the second quarter but consumer demand has faded. The company said that price increases could start to moderate in the second half of this year.
Stew Leonard Jr., president and CEO of Stew Leonard’s, a supermarket chain that operates stores in Connecticut, New York and New Jersey, said he has told the big consumer product companies that he wouldn’t accept any more price increases because he believes customers have reached a tipping point.
“Enough is enough,” said Leonard, who said he’s being a little more flexible with beef and chicken suppliers, which are typically family-owned.
The chain has been expanding its private label business to offer more affordable choices to shoppers, including ice cream, tortilla chips and potato chips.
AP writer Chris Rugaber contributed to this report.
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