How Wealth Disparities Shape U.S. Retail Spending Trends

In September 2024, U.S. retail sales reached $714.4 billion, marking a 0.4% increase from August and surpassing analysts' expectations of a 0.3% rise [69d78b73]. This follows a modest gain of 0.1% in August, which was revised to total $711.3 billion [b6826940]. Year-over-year, retail sales rose by 1.7%, slightly slower than the 2.1% increase observed in August [69d78b73]. Core retail sales, excluding automobiles and gas, showed a stronger increase of 0.7%, the fastest since June, exceeding forecasts after a 0.3% rise in August [3bd210e1][5fd1a49d]. Wealthier Americans are significantly driving this retail spending, with strong income, home equity, and stock market gains contributing to a robust economic outlook [3cc17789][adf2bb01]. Notably, the wealthiest 20% of Americans spend more than the combined incomes of the lowest 60%, highlighting stark economic disparities [531d1fd6]. Home equity for the wealthiest increased by 70% since Q1 2020, totaling $17.6 trillion, while stock and mutual fund wealth jumped 86% to nearly $37 trillion [3757b626][adf2bb01].

Specialty stores led the charge with a remarkable 4% increase, while clothing stores rose by 1.5% and health and personal care shops by 1.1% [6cae5def]. Restaurant sales also increased by 1.0% to $96.4 billion, showcasing a rebound in consumer activity across various sectors [69d78b73][adf2bb01]. However, gas station sales fell by 1.6% due to declining gas prices, which impacted overall spending figures [6cae5def]. When excluding gas, retail spending rose by 0.6%, showcasing underlying strength in consumer behavior despite fluctuations in fuel costs [6cae5def].

This uptick in consumer spending is particularly significant as it constitutes about 70% of the U.S. economy [6cae5def]. The Federal Reserve's recent decision to cut interest rates by 50 basis points has reduced the benchmark from 5.25%-5.5% to 4.75%-5% for the first time in over four years [b6826940][5fd1a49d]. Fed Chair Jerome Powell emphasized the importance of preventing any faltering in the job market, which has been a key driver of consumer confidence and spending [6cae5def]. In September alone, the economy added 254,000 jobs, reflecting a robust job market that supports consumer spending [b6826940][5fd1a49d]. However, initial jobless claims were reported at 241,000, down from 260,000 the previous week, while continuing claims rose to 1.867 million, slightly above the consensus of 1.865 million, indicating rising concerns about job security that could impact consumer spending [531d1fd6].

The Atlanta Fed's GDPNow estimate for Q3 GDP growth has risen to 3.4%, reflecting the positive impact of the retail sales increase and prior months' revisions [3bd210e1][5b54f09c]. In August 2024, U.S. consumer spending had already shown resilience with a 0.2% increase, slightly below the forecasted 0.3% [399bf0ab]. This followed a stronger 0.5% rise in July, indicating a potential cooling in consumer momentum [dcc7c04b]. Revisions to savings, consumption, and income data suggest that consumers are in a better financial position than previously thought, with real consumer spending running at an annualized rate of 3.4% [399bf0ab][c918e6af].

The total retail sales reached approximately $737 billion, reflecting a 1.5% rise compared to the previous month [a3bd7b05]. Fitch Ratings reported that consumer spending grew at an annualized rate of 2.9% in Q2 2024, with projections of a 2.2% growth for the entire year [10bb8c1b]. The goods trade deficit narrowed by $8.6 billion to $94.3 billion, further indicating a strengthening economic backdrop [399bf0ab].

Despite the positive indicators, lower-income consumers are struggling with higher costs, limiting their discretionary spending. Inflation-adjusted consumer spending rose 3% in 2022 and 2.5% in 2023, but upper-income households have seen retail spending increase by 17% since January 2018, while middle-income households' spending rose 13.3% and lower-income households' spending increased only 7.9% [3757b626][adf2bb01]. The share of discretionary spending for the lowest-income households fell by 2.5 percentage points, emphasizing a growing disparity in economic recovery [3757b626]. Furthermore, credit card and auto loan delinquencies are at a decade high, raising concerns about financial stability among lower-income consumers [fad3a518].

In contrast, European consumers have been saving more, with the household saving ratio reaching a three-year high of 15.7% in the three months leading to June 2024, up from a pre-pandemic average of 12.3% [74a66ebb]. This divergence in consumer behavior highlights the complexities of the global economic landscape. Mark Zandi, chief economist of Moody’s Analytics, emphasized that "the American consumer has been driving the global economic train," underscoring the significance of U.S. consumer spending on the broader economy [74a66ebb].

The retail sector's performance is crucial, as it accounts for a significant portion of the U.S. economy, and the outlook remains cautiously optimistic as it navigates these challenges [3040bad6]. Overall, the U.S. economy is projected to grow by 3.2% in Q3 2024, with many consumers shifting towards discount retailers in response to inflation pressures [b6826940][3040bad6]. However, concerns about inflation and consumer confidence are affecting holiday shopping plans, with a third of consumers planning to reduce spending compared to last year [74a66ebb][5fd1a49d]. Hurricane Helene's impact on sales was noted to be minimal, suggesting that external factors have not significantly disrupted retail performance [b6826940].

In corporate news, CVS Health CEO Karen Lynch has stepped down amid a 19% drop in shares, marking a significant leadership change within the company [78b72f1a]. Additionally, American Express reported a Q3 profit of $2.51 billion, beating expectations and reflecting strong consumer spending [78b72f1a]. The U.S. is investigating Tesla's 'Full Self-Driving' system following a pedestrian death, raising concerns about the safety of autonomous vehicles [78b72f1a]. The impact of Hurricanes Helene and Milton is projected to be significant, with estimates suggesting they could lead to $50 billion in damages [c3cb050c]. Furthermore, the growing interest in nuclear power is being driven by Big Tech's increasing energy needs, highlighting a shift in energy consumption trends [c3cb050c]. U.S. stocks are nearing their longest weekly winning streak of the year, indicating investor confidence in the economic recovery [78b72f1a]. TikTok influencers are facing criticism for their 'kindness content,' reflecting broader social media trends [78b72f1a]. The Biden administration is accelerating clean energy funding ahead of elections, which may influence future economic policies [78b72f1a].

Retail sales categories also showed growth, with new and used vehicle dealers reporting $134 billion (+1.3% MoM), e-commerce at $124 billion (+0.6% MoM), and food services at $96 billion (+0.7% MoM), while gas stations saw a decline to $52 billion (-0.8% MoM) [5b54f09c]. Additionally, the S&P 500 index gained over 22.5% year-to-date, reflecting investor confidence in the economic recovery [fa1a5e0e][3bd210e1]. The DXY index rallied to its best levels since early August, indicating further dollar gains fueled by strong consumer performance [3bd210e1]. Meanwhile, geopolitical tensions in the Middle East may lead to profit-taking in the markets, adding a layer of complexity to the economic outlook [3bd210e1].