Retail Growth Masks a More Selective Shopper

In June, retail sales continued to grow, but the composition of that growth saw consumers making more deliberate choices about where their money goes. Households continued to spend where purchases were difficult to postpone, while many discretionary categories struggled to gain traction. For merchants, banks and payments providers, that distinction matters more than whether retail sales rose another few tenths of a percentage point.

Data released Thursday (July 16) from the Census Bureau showed that retail and food services sales increased 0.2% in June to $768.6 billion, while sales were 6.7% higher than a year earlier. Core retail sales, excluding automobiles and gasoline, rose 0.4%, and retail sales excluding gasoline stations increased 0.7% from May.

The category breakdown showed where households drew sharper lines. Motor vehicle dealers posted a 1.9% monthly gain, electronics and appliance stores rose 0.8%, and nonstore retailers advanced 1.9%, indicating continued momentum across digital channels. At the same time, clothing and accessories stores fell 0.3%, health and personal care stores declined 0.8%, and grocery sales slipped 0.4% from May.

That pattern closely matched what PYMNTS Intelligence has been measuring in its own surveys. “The Three-Speed Consumer Economy: How Financial Capacity Is Rewriting Spending Behavior,” the June installment of PYMNTS Consumer Expectations Index, found that broad measures of consumer confidence obscure a more important reality. Consumers no longer behave as a single economic group. Financial capacity, rather than confidence alone, has become the better guide to spending behavior.

Households that do not live paycheck to paycheck remained comparatively stable. Consumers living paycheck to paycheck but keeping up with bills also showed little movement. The deterioration came among households struggling to pay bills, whose composite score fell to 40.6, widening the gap between the strongest and weakest financial groups to roughly 21 points.

The distinction helps explain why spending has remained resilient even while traditional confidence measures have weakened. Consumers may express concern about the broader economy, yet those with stable employment and manageable household finances continue to make purchases. Households under greater financial pressure have responded differently, narrowing spending to essential categories while delaying purchases that can wait.

Retailers Describe a More Selective Consumer

The Federal Reserve’s July Beige Book, released Wednesday, reaches many of the same conclusions through conversations with businesses across the country.

The national summary said consumer spending edged higher, but several Federal Reserve districts reported weaker demand for discretionary merchandise and more shoppers trading down to lower-priced alternatives. Higher fuel prices also weighed on spending in other retail categories, while consumer loan quality softened modestly.

The regional anecdotes provided useful context for the Census figures. New York businesses described another version of the same pattern. Luxury retailers continued to perform well, but other merchants reported consumers becoming more cautious. A coffee shop operator said the average purchase declined, a dental practice reported more appointment cancellations, and auto dealers cited affordability concerns that continued to restrain new vehicle demand.

A triangulation of the Census report, PYMNTS Intelligence research and the Federal Reserve’s field reports described the same consumer from different perspectives. Spending has not stalled, but it has become more selective. Retail sales continue to expand because many households still have the financial capacity to spend. The categories benefiting from that spending, however, have become narrower, while discretionary purchases face closer scrutiny as consumers weigh each purchase against higher everyday costs.