A sweeping increase in prices paired with a modest dip in the cost of gasoline combined to deliver a 1% advance in June retail sales, reversing a prior-month slump while also showing continued resilience and financial creativity on the part of cash-strapped consumers.
Officially, the latest Commerce Department report released Friday (July 15) showed the prior month’s reported 0.3% decline had also been dampened to a 0.1% dip. When sales at gas stations are backed out, retail sales were up 0.7% for the month compared to May, thanks to outsized gains in nonstore sales (or eCommerce), which rose 2.2%, followed by 1.4% advances by both the miscellaneous retail as well as the furniture and home furnishing categories.
Read more: Retail Sales Turn Negative, Reflect Broad-Based Consumer Caution
On the downside, clothing sales fell 0.4%, building materials were down by 0.9%, and department stores posted a 2.6% decline, marking the sharpest month-on-month drop in the 16 market segments measured in the survey.
“While inflation is contributing to the rise, consumers don’t appear to be pulling back on their spending just yet, even as talk of recession continues to build,” TD Bank Head of Retail Card Services Mike Rittler said in an emailed statement to PYMNTS. “As we progress through the year, it will be interesting to see how the ongoing downward shift in consumer confidence impacts sales, as well as the uncertainty that comes with the midterm elections.”
Rittler predicted the combination of inflation, consumer confidence and elections would likely lead to uncertainty and volatility.
All About Inflation
The news comes just two days after the government’s latest inflation reading showed the June Consumer Price Index (CPI) rose to 9.1% last month.
See more: Banks Watch Nervously From Sidelines as 9.1% Inflation Crushes Consumers
More recently, however, AAA data has shown that the average price for a gallon of regular gasoline has fallen about 9% over the past month to $4.57 per gallon, down from $5.01 in early June.
That said, the monthly retail sales figures are not adjusted for inflation, which has seen consumers spending 10% to 20% more for key categories such as food, fuel, housing and flights.
Because consumer spending accounts for 75% of the United States economy, the loss of buying power has been a core concern and driver of interest rates for the Federal Reserve. At the same time, PYMNTS data has shown the wide-spread belt tightening that higher prices have caused has also seen an increase in the number of households living on a paycheck-to-check basis — including those making more than $250,000 per year.
Read more: Unexpected Expenses Could Hobble Inflation-Weary Paycheck-to-Paycheck Consumers
To close this gap of lost buying power, consumers have had to make sweeping changes in buying habits, such as trading down to less expensive brands or food choices, as well as shifting spending away from discretionary purchases and toward essential items.
At the same time, increased attention is also being paid to the way consumers are making or financing purchases. It’s a shift that has seen an increase in the use of buy now, pay later (BNPL) installment payments plans to make smaller, basic purchases as opposed to taking on more credit card debt.
To that point, economists have been tracking the rise in untapped credit lines, which have risen to more than $3.3 trillion, as tight-fisted consumers rein in large purchases.
See more: Tight-Fisted US Consumers Sit on $3.3T of Untapped Credit Card Lines
The combined effect that inflation, spending and other economic headwinds are having was also a factor — and challenge — for J.P. Morgan Chase, as the nation’s largest bank reported Thursday (July 14) that while U.S. consumers are still in “great shape,” the company is also taking the precautionary step of boosting its loss reserves to protect against the rising probability of problems in coming months.
Read more: JPMorgan Says US Consumer in ‘Great Shape’ but Macro Is Deteriorating
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