Economists Have Been Predicting A Spending Slowdown—These Retailers Don’t See It

Retailers have seen customers remain resilient in their spending even as economists have predicted a slowdown.

Households have struggled to keep up with record-high inflation and interest rates. Excess savings have dwindled and households are relying more on credit cards for shopping. These macroeconomic factors have caused many experts to forecast a slowdown in the consumer spending surge that has propped up the economy in the wake of the pandemic.

However, consumer spending has not waned much, according to some big retailers.

“I know everyone is looking for some pieces of information that maybe indicate further weakness with our members and our customers. We’re not seeing it,” said John David Rainey, chief financial officer at Walmart (WMT), in the company’s earnings call last week.

And it wasn’t just Walmart that clocked continued spending. On Wednesday, Target (TGT) reported growth in same-store sales, and Marshall’s parent TJX (TJX) boosted its sales outlook the same day.

So Where’s the Disconnect?

Not all companies had the rosy outlooks of the big box stores and discount retailers, illustrating some of the tumult in household finances that economists point to.

Home improvement giant Lowe’s (LOW) reported in its earnings that households are holding off on purchasing big-ticket items. Amazon’s (AMZN) chief financial officer, speaking in a conference call with investors, said customers are opting for cheaper products. Consumers are opting to buy their goods at value-oriented stores, Keurig Dr. Pepper’s (KDP) CEO said on the company’s earnings call. And Bank of America analysts downgraded American Express amid less travel spending.

These assertions, coupled with the latest economic data on retail sales, depict households that aren’t spending less money—they’re just shifting what they spend on.

Economists Say Consumer Spending Is Bound to Fall

Still, economists said surprising consumer spending growth isn’t likely to continue.

“We expect real consumer spending growth to moderate in the second half of this year amid slower job growth, rising unemployment and record-high credit card debt.” Jay Hawkins, senior economist at BMO, wrote in an analysis of the retail sales report earlier this month.

Another reason economists think consumers will soon curb spending is that interest rates remain at two-decade highs, though the Federal Reserve appears poised to start slowly cutting rates soon. The continued high rates will slow employment growth, which would cut into spending, wrote Kathy Bostjancic, chief economist for Nationwide.

Retailers realize it won’t all be smooth sailing. With an unpredictable economy, retailing giants are not “immune from the volatility,” according to Walmart’s CFO Rainey.

“While we have not seen any additional fraying of consumer health in our business, other economic data out there, as well as the state of affairs globally, would suggest that it is prudent to remain appropriately cautious with our outlook,” Rainey said.