Retail Spending Pause Shows Consumers Picking Their Spots

July’s retail sales decline landed in the middle of a much more deliberate reset in household spending. Consumers are still buying, in select categories. But PYMNTS Intelligence data show how aggressively they are working the budget first, from switching brands and merchants to hunting discounts and comparing prices before deciding where the next dollar go

U.S. retail and food services sales totaled $763.6 billion in July, down 0.6% from June, according to Census Bureau data released Friday (Aug. 14).

The category breakdown proves illuminating. Motor vehicle and parts sales fell 1.8% from June, gasoline stations declined 0.9% and electronics and appliance stores slipped 0.5%. Grocery sales edged down 0.1%. Clothing and accessories, by contrast, rose 1.9%, health and personal care gained 0.7%, and sales at restaurants and bars increased 0.5%. General merchandise and furniture each gained 0.3%.

The distribution of those gains and losses is consistent with a consumer who is managing the budget purchase by purchase. That is also the pattern identified in the August PYMNTS Intelligence Data Book, “Five Ways Consumers Make Tight Budgets Work Harder.” Our findings show households responding to higher prices through a combination of spending cuts, brand substitution, price comparisons and changes in where they shop.

Budgeting does not necessarily translate into an equal reduction across every category. PYMNTS Intelligence found that 53% of paycheck-to-paycheck consumers struggling to pay bills had cut spending on nonessentials such as dining out, entertainment and travel during the previous year. Yet 23% said they had increased spending in those areas.

July’s official data from Friday provides another example of that unevenness. Restaurant spending rose despite the overall decline in retail sales. Clothing produced the strongest monthly increase among the major categories. Consumers pulled back elsewhere, particularly on autos, while continuing to spend in categories they chose to preserve.

Consumers Rework the Budget

The PYMNTS Intelligence data show how some of that spending capacity is being created.

Among Labor Economy consumers, 49% bought store-brand or private-label products during the past year. Forty-six percent used coupons or promotional codes, 41% compared prices and 31% used cash-back or rewards apps. These are methods for reducing the cost of a purchase without necessarily eliminating the purchase itself.

The 2.2% decline at nonstore retailers reported by the Census Bureau, often used as a proxy for eCommerce, needs to be considered in that context. Online sales had been elevated by major promotional events in June, making some reversal in July plausible. More important, nonstore sales were still 7.7% higher than a year earlier. The monthly decline therefore says relatively little by itself about the longer-term movement of commerce online.

The broader retail figures do show a loss of momentum. June’s 0.2% increase became July’s 0.6% decline, and several large categories weakened simultaneously. Yet the data do not establish a broad consumer retrenchment.

PYMNTS Intelligence offers another reason to be careful about treating July as the start of a sustained pullback. Thirty-five percent of consumers classified as proactive said their methods for coping with financial pressure were very or extremely effective, compared with 19% of reactive consumers. The proactive group uses several approaches, including generating additional income, negotiating bills and managing payment timing.

July may therefore prove to be a pause after a stronger first half rather than the start of a prolonged contraction. For retailers, the immediate issue is what consumers do during that pause: where they economize, which purchases survive the budget review and which merchants capture the dollars that remain.