Retail Detail: Consumers Feeling the Squeeze

The turmoil on Wall Street early last week reignited talk of the big “R-word.” Recession. Much of it is tied to mounting concerns about cracks in consumer spending. There’s no denying that consumers are digging around for more deals and prioritizing essentials over discretionary items. Consumer discretionary is now the lone negative sector this year, down 2%, while consumer staples are up 11%.

But the retail earnings parade begins in earnest this week, and results from Walmart, Home Depot, and Tapestry will paint a clearer picture – as will July retail sales on Thursday. Home Depot beat on both the top and bottom lines but mentioned homeowners are holding off on major home renovations and cautioned that sales will be weaker in the coming months.

On the data front, economists are expecting a tepid 0.4% rise in monthly retail sales and an even more modest 0.1% when you strip out autos. But for the year, the National Retail Federation projects retail sales will still grow between 2.5% and 3.5%. That’s right in line with the 10-year average annual sales growth before the pandemic.

Retail Sales Growth

Online sales are expected to jump between 7-9% year-over-year to roughly $1.5 trillion. Amazon alone boasted a record $14.2 billion in sales from its Prime Day – its biggest shopping event ever, up 11% year-over-year. Millions more Prime members took advantage of the two-day shopping event this year than in 2023, with consumer electronics and back-to-school among the strongest spending categories.

Consumers Getting Pickier

Despite strength in e-commerce, overall credit card spending has started to wane, and we’re seeing some signs the consumer could be feeling the squeeze. A new report by TransUnion found that the average credit card balance in the US is now $6,329, up nearly 5% from last year. The personal savings rate is near an all-time low and loan delinquencies are inching up. Subprime consumers, which make up nearly a third of the U.S. population, are also showing signs of financial strain. As the economy softens, these lower-credit consumers are often the first to take a hit.

Credit card delinquencies above long-term average

Source: Equifax