Consumer spending is beginning to show signs of recovery going into the summer, but major retailers are not getting their hopes up.
Findings from the National Retail Federation’s CNBC/NRF Retail Monitor announced Monday (June 10) showed that in May, consumer spending increased 1.35% relative to April, the highest month-to-month rise recorded in more than a year, and spending was up nearly 3% year over year.
“Consumers have clearly retained their ability to spend and are driving solid economic growth,” NRF President and CEO Matthew Shay said in a statement. “Spending is being supported by the job market and real wage gains. Inflation remains stubborn but is almost entirely in services rather than retail goods.”
Yet major retailers are, for the most part, still seeing consumers show signs of conservative spending.
“Many consumer pocketbooks are still stretched, and we see the effect of that in our business mix, as they’re spending more of their paychecks on non-discretionary categories and less on general merchandise,” John David Rainey, executive vice president and chief financial officer at Walmart, told analysts on the retailer’s earnings call last month.
Similarly, on a call Thursday (June 6) discussing Big Lots’ first-quarter fiscal 2024 earnings results, President and CEO Bruce Thorn called out “continued pullback in consumer spending by our core customers, particularly in high-ticket discretionary items.”
Target, meanwhile, is seeing consumers make room in their budgets for nonessential splurges — but not on retail products.
“Business trends continue to reflect a normalization in spending patterns that first emerged more than two years ago, a pattern where consumers are remixing their spending back into services and entertainment outside of their homes after curtailing those activities during the pandemic,” Target Chairman and CEO Brian Cornell told analysts on an earnings call in May. “This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories.”
In recent months, consumers have continued to feel the economic pressure. The April edition of the PYMNTS Intelligence “New Reality Check: The Paycheck-to-Paycheck Report” series found that the average consumer has three months of income saved, and 58% of consumers live paycheck to paycheck.
Plus, the February/March edition of the report revealed that 60% of consumers have reduced the quantity of their nonessential retail purchases due to price increases, and half have switched to cheaper merchants.
Even the NRF’s own data showed continued caution. Despite the increase in spending, the NRF still predicted that consumers will shell out less on gifts for their dads this Father’s Day than last year.
As such, economic pressures continue to influence consumer behavior, leading to conservative spending patterns. Inflation in services and the lingering impacts of the pandemic on spending habits persist, prompting retailers to see consumers prioritizing essential expenditures and experiences over general merchandise and discretionary items.
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