One household delaying a purchase is careful budgeting. Millions doing it can slow the economy.
U.S. retail sales fell 0.6% in July, much weaker than economists expected. Some of the decline can be explained by Amazon Prime Day moving into June, but the report also suggests that consumers are becoming more selective.
Willie and I understand that kind of spending decision. Do I really need three new shirts, or will one do? Willie already has Charlie Bear treats, so do we need to buy another kind? I need new windshield wipers, but rainy season is still a couple of months away.
For one household living on a fixed budget, those are sensible choices. When millions of households make similar decisions at the same time, however, retailers sell fewer products, businesses order less inventory and employers may become more cautious about hiring.
Higher-income households appear to be keeping consumer spending from falling much further. Research from the Federal Reserve Bank of New York found that recent retail-spending growth has been disproportionately driven by households earning more than $125,000. Rising stock portfolios and household wealth have allowed many of these consumers to continue traveling, dining out and making larger purchases.
That creates two different consumer economies: one group continues spending comfortably, while another asks whether each purchase is necessary—or whether it can wait.
The July report does not mean consumers have stopped spending. Restaurants and bars still recorded an increase. But it does suggest that more Americans are prioritizing necessities, looking for sales and postponing purchases that can safely wait.
The next few months will show whether July was partly a calendar quirk or another sign that cautious consumers are beginning to slow the broader economy.
Resources
U.S. Census Bureau: Monthly Retail Sales Report
Federal Reserve Bank of New York: Explaining the K-Shaped Economy
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