More Signs of Weaker Consumer Spending
The debt ceiling debate, a slowing economic recovery, and the more recent slide in stocks has given consumers plenty of reasons to be cautious, and it's starting to show up in the numbers.
First Data's latest Spend Trend reportshowed consumers spent less on credit cards in July, started shopping more at value retailers, and purchased fewer discretionary items. The average ticket, or the amount consumers spend in each transaction, also declined.
"Consumer angst increased in July, as a succession of negative economic headlines and the debt ceiling debate combined to put a damper on consumer spending," First Data said in their report. "Even though input costs have risen with inflation, many merchants have responded by slashing prices in order to spur consumer demand. This trend will have a negative impact on these retailers heading into the peak of the back-to-school shopping season."
Year-over-year volume growth was 7.3 percent in July, which was a significant slowdown from June's 8.8 percent growth, and the largest month-to-month decline in six months. The numbers are based on aggregated year-over-year, same-store sales activity for card-based payments.
Meanwhile, the average ticket growth was 1.1 percent in July, First Data said. This is a significant slowdown from June, when the average ticket grew 2.1 percent.
The slowdown is even more concerning when one considers that gas prices are on the rise againand are helping to push up the size of the average ticket.
Also noteworthy, higher-end consumers, which have been helping to prop up consumer spending, were among those pulling back on credit-card spending last month.
Of course, part of what is driving this weaker spending is souring consumer confidence, and that trend does not seem to be reversing itself.
In fact, one research firm, Consumer Edge Research,issued a survey of consumer confidence, and it shows confidence has fallen sharply in the first 10 days of August.
The interim CER Consumer Economic Index, which tries to gauge the Conference Board's consumer confidence index, was at 46.9 in mid-August. That's an 8.5 percentage point deterioration from the final CER CEI of 55.4 in July.
What's more, the reading is also the weakest Consumer Edge has measured since it began the index in March 2010.
"Although there are many casual factors behind the changes in consumer confidence, the employment pictureis likely one of the biggest," ConsumerEdge said.
Specifically, Consumer Edge cited the acceleration in the the U6 "full" unemployment figurein the Department of Labor's monthly employment report. From March to July, the U6 deteriorated 40 basis points and is now at 16.1 percent.
That's a reversal of earlier this year, when the U6 number had a break-out period improving from 17.0 percent to 15.7 percent.
With this backdrop, it's not surprising that the more recent back-to-school spending forecasts have offered an uncertain outlook for back-to-school shopping season.
One of the latest came from BDO USA, which said it expects consumers and retailers to play a "cat and mouse" game when it comes to buying back-to-school items. Instead of heading out for one big back-to-school buying binge in a single weekend, consumers will be spending in fits and starts as they seek out the best deals and comparison shop online to make sure they are getting the best deal.
And they may find them because back-to-school merchandise was ordered in February and March, when many had a more positive outlook about where consumer spending would be at this time.
As a result of this volatility, BDO doesn't expect this back-to-school shopping season will offer investors a good sense of how holiday sales will fare.