Discretionary Spending Pullback May Paint Clearer US Economic Picture

Sometimes it just comes down to the cold, hard numbers.

Three department stores, along with Best Buy, released their earnings this week , and the news was pretty grim when it comes to consumer spending on nonessential items. Macy’s comparable-store sales were down 3.3% year over year, with Nordstrom’s net sales down 4.1% and Kohl’s comp-store sales down 6.6% during the same time period. Best Buy didn’t fare much better, as the home electronics giant forecasts a 3% to 6% sales decline in the coming fiscal year.

At first glance, these earnings seem to contradict recent headlines about consumer spending rebounds following the latest Census-released retail numbers. However, a deeper dive into consumer spending demonstrates that any economic bounceback may still be months away. When matching up Census sales data with the Bureau of Labor Statistic’s CPI reports , it becomes apparent that shoppers aren’t buying more items but instead are paying more for the same. Or, in some cases, paying more for less .

These findings and this week’s earnings reports bear out PYMNTS’ long-running research on consumers’ finances and spending habits. Shoppers’ shift from discretionary purchases has been recently cataloged in the December PYMNTS collaboration with Lending Club, “ New Reality Check: The Paycheck-to-Paycheck Report 2022 Year in Review .”

Consumer spending on non-necessities such as furnishings or toys dropped dramatically in the 30 days prior to being surveyed, compared to essential items. While inflation overall has been steadily dropping , the cost of core goods remains worryingly high . Clearly, this extended period of higher prices on essentials continues to make its mark, impacting purchasing power across financial lifestyles and straining both shoppers’ budgets and discretionary retailers’ revenues.

Even as shoppers trade down and cut back, an average 22% of U.S. incomes are spent solely on food, clothing and shelter. Add in other costs, such as transportation and for many, and there just isn’t any room for “extras.” No wonder households are carrying increased revolving lines of credit. And this is all before Supplemental Nutrition Assistance Program (SNAP) benefits get cut back later this month, most directly affecting grocers but sure to have a ripple effect on retail as recipients make up for the shortfall by cutting back in other areas.

Like all cycles, this inflationary period will eventually end. However, we may just not be there yet.