After a better July and back-to-school season for retail sales, it looks like things slowed in the second half of August across many categories as the first chart below shows. That includes trends at high-end retailers--see Saks, Bloomingdale’s, and Neiman Marcus trending in the second chart below.
We expect that moderate downshift to be revealed when the monthly retail sales are reported next Thursday (the Monthly Retail Sales Report). We suspect that the slowing is likely to also be discussed by the large swath of retailers that will be presenting and meeting with large investors at next week’s Goldman Sachs’ Global Retailing Conference.
Why the downshift? We suspect several reasons: (1) thrift and frugality for spending on goods are still top of mind for consumers and as we moved out of back-to-school, there is not an event/need to go to stores like we saw with Valentine's Day, Mother’s Day, and 4th of July earlier in the year; (2) higher gas prices and persistently high grocery prices may have taken some added wallet share; (3) excess household savings that were accumulated during the pandemic are running out (recall that credit line utilization rates and delinquencies have been rising); (4) consumers continue to prioritize in-person experiences such as travel and entertainment (i.e., Barbenheimer), which may have come at the expense of spending on goods (this is what credit card data also suggests–see the comments from Visa’s CEO and their transaction data below); and (5) the impact of hurricanes hitting Florida and California.
Visa’s CEO Ryan McInerney
“Stability, resiliency in the U.S. and around the world...In the U.S., I would also say stable, as you mentioned, a slight uptick in U.S. payment volume to 7%; 6% for credit; 7% for debit. Transaction growth in the U.S. was stable. The driver of the modest uptick was an increase in average ticket size, a big portion of that being fuel increases in average ticket size.” As Visa’s data shows in the figures below, is an uptick in card present activity in July and August. Card present is physical commerce be it at a retailer, movie theater, or restaurant. The trend also inflected higher from the 2019 baseline and it is these bounces that were described by retailers when they reported fiscal Q2 2023 results over the past three weeks.
Source: Visa 8-K filing 8/30/23
Should these reasons be accurate, we would expect retail sales for September and early October to remain at a more subdued level, both on an absolute and relative basis. However, once we get into November, the year-over-year trend should pick up as last November meaningfully slowed compared to 2021 and versus pre-pandemic level. (You can find our report here about that period.)