What recession? US consumer spending still churning despite record inflation

Shoppers walk by a sale sign at Express Men in City Creek Center in Salt Lake City on Wednesday. A Census Bureau report shows U.S. consumer spending continues to run at record volume in spite of persistent, record-high inflation.

Shoppers walk by a sale sign at Express Men in City Creek Center in Salt Lake City on Wednesday. A Census Bureau report shows U.S. consumer spending continues to run at record volume in spite of persistent, record-high inflation. (Jeffrey D. Allred, Deseret News)



Estimated read time: 3-4 minutes

SALT LAKE CITY — Persistent record-high inflation hasn't yet compelled U.S. consumers to completely stash their credit cards and checkbooks as overall spending in July jumped more than 10% over the same time last year, according to a new federal report.

The U.S. Census Bureau's advanced estimate of July sales volumes for retail goods and food services found consumer spending hit almost $683 billion for the month, essentially matching the sales total for June but an increase of 10.3% over July 2021.

Retail spending in July was up 10.1% over last year, according to the report, but came in essentially flat when compared to June sales volumes. Gas station sales rose 39.9% from July 2021, while non-store retailers were up 20.2% from last year. And, total sales from May 2022 through July 2022 were up 9.2% from the same period a year ago.

The same factors that helped power a July dip in the U.S. annual inflation rate, easing to 8.5% from June's 40-year high of 9.1%, also helped buoy consumer spending in July as money saved from declining gas and energy costs was shifted to spending in other areas.

Pushing back on recession fears: Per Reuters, a big drop in gas prices over the month of July helped free up money for spending on other consumer goods including furniture, electronics and appliances as well as building materials and garden equipment. That pattern, along with a still vibrant jobs market and healthy overall wage growth, suggests consumer spending could remain strong in the months ahead.

It's also further evidence that the U.S., in spite of a series of recent GDP declines, has not entered a recessionary period. And, the data reflects nothing to dissuade the Federal Reserve from making another 0.75 percentage point hike to its benchmark interest rate when the monetary policy body meets again in September.

"The U.S. economy is not currently in recession," Cliff Hodge, chief investment officer at Cornerstone Wealth in Charlotte, North Carolina, told Reuters. "Consumers remain resilient in the face of sticky inflation."

Shoppers walk through City Creek Center in Salt Lake City on Wednesday. A Census Bureau report shows U.S. consumer spending continues to run at record volume in spite of persistent, record-high inflation.
Shoppers walk through City Creek Center in Salt Lake City on Wednesday. A Census Bureau report shows U.S. consumer spending continues to run at record volume in spite of persistent, record-high inflation. (Photo: Jeffrey D. Allred, Deseret News)

Consumer spending the same, only different: While overall spending from June to July remained flat, recent earnings reports from major U.S. retailers offer some insight into how inflation is impacting how and where consumers spend their money.

Comparing recent quarterly sales figures from Target alongside Walmart's reporting reveals consumers are spending more on essentials, which have been hard hit by inflationary price increases, and less on discretionary purchases.

Retail giant Walmart outperformed analysts' expectations in the second quarter of 2022, with overall sales up by more than 8%. Walmart's strong sales in groceries and consumables helped drive the better-than-expected quarter with low double-digit growth in grocery sales while sales of general merchandise saw some single-digit declines. And, Walmart's competitive grocery pricing is attracting more customers from higher income brackets.

Walmart chief financial officer John David Rainey told CNBC the retailer's reputation as a discounter is attracting more middle- and high-income shoppers. About three-quarters of Walmart's market share gains in food came from customers with annual household incomes of $100,000 or more.

Rainey told CNBC that Walmart is seeing signs of a budget-strapped consumer who is trading down "in terms of quality and quantity," too, opting for smaller packages of food and buying items like canned tuna and beans instead of deli meats and beef.

Compare that sales growth to Target, a retailer whose sales are driven much more by general merchandise than groceries.

Target saw its profits drop by some 90% in the second quarter of 2022, thanks mostly to a pullback in consumer spending on discretionary goods.

A report from CNN notes U.S. retailers, including Target, have been forced to cut prices on general merchandise, such as clothing, electronics and home goods because of excess inventories. Exacerbating those price cuts, consumers are shifting some of their spending on discretionary wants to cover the inflation-driven higher costs of food and other basic needs.

A shopper carries her package at City Creek Center in Salt Lake City on Wednesday. A Census Bureau report shows U.S. consumer spending continues to run at record volume in spite of persistent, record-high inflation.
A shopper carries her package at City Creek Center in Salt Lake City on Wednesday. A Census Bureau report shows U.S. consumer spending continues to run at record volume in spite of persistent, record-high inflation. (Photo: Jeffrey D. Allred, Deseret News)

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InflationU.S.Business & Tech
Art Raymond

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