Consumer Sentiment Dips From July’s Levels and Retailers May Face Pressure at the Register

U.S. consumers are slightly less optimistic about the economy this month, following two straight months of growing confidence.

The preliminary data and index measuring consumer sentiment released Friday (Aug. 11) by the University of Michigan fell to 71.2 in August from July’s 71.6.

“In general, consumers perceived few material differences in the economic environment from last month, but they saw substantial improvements relative to just three months ago,” said University of Michigan Director of Surveys Joanne Hsu in comments that accompanied the release.

The data showed that expectations for inflation stand at 3.3% for the year ahead. That measure is down slightly from 3.4% seen in July.

The Index of Consumer Expectations — which measures sentiment over how the economy will fare over the next six months — nudged down to 67.3, where that number had been 68.3 in July. The Expectations Index might be viewed as a harbinger of consumer spending. Although this measure is up 16% from August of last year, back then, inflation was running much higher than it is today at more than 8%.

What Lies Ahead

There will be more data on hand later in the month when the final results are announced. But the fact that there has been a least some slippage in the month, and in the sentiment as to what lies ahead, may give some merchants pause.

Dampened sentiment, coupled with budgets that are a bit more constrained may translate into hesitancy on the part of consumers to keep spending.

The Federal Reserve’s latest quarterly update on household debt showed that credit card balances increased by $45 billion in the second quarter of 2023 as measured against the first quarter. Digging into the report, credit card debt increased at a 4.6% quarterly pace.

Separately, overall revolving debt increased at a 7.1% annual rate in the most recent quarter.

PYMNTS has found that a third of consumers had increased their spending on credit cards over the last several months.

And in the most recent reading on the paycheck-to-paycheck economy, 61% of consumers live within that designation, just making ends meet. As many as 65% of consumers earning between $50,000 and $100,000 live paycheck to paycheck as of June, up from 60% a year ago.

Although spending has been resilient, credit card debt remains to be reckoned with, and perhaps more so by households (which would need to purchase more goods) than by individual consumers. The most recent data showed that at $6,300 and $7,200, outstanding credit card balances for couples and families are 36% and 50% higher, respectively, than those of consumers who live alone.