This story was cross-posted from Rikard Bandebo's blog on SeekingAlpha.com.
Consumers' purchasing patterns in July were relatively somber. Same-store retail sales across the nation declined sequentially throughout the second quarter of 2012, according to First Data's SpendTrend Macro Solution. Coming in at a 5.7% year-over-year (YoY) total dollar volume growth, consumer spending in July completed a quarter of sequentially slumping retail sales growth. Compared to a 6.4% YoY growth in June and 7.0% YoY growth in May, spending was sluggish as consumers continued to manage their cashflows in the wake of a skittish recovery.
Is the U.S. Economic Recovery Weakening?
The U.S. economic recovery is precarious. Consumer spending in July was sluggish with increased sales volumes prodded by retail promotional discounts resulting in lower average tickets. Anyone who expected a quiet stimulus for consumer spending due to lower prices at the pump in the second quarter of 2012 has been left disappointed. Increasing prices at the pump in July reversed a three month trend of declines without any evidence of increased retail sales. The worst drought in 50 years, which has spread over half of the United States, is expected to worsen. A hopeful Bureau of Labor and Statistics jobs report for July, which showed the highest growth in the number of non-farm payroll employment since February 2012, combined with an average hourly wage increase of $0.02 to $23.52 per hour, could easily be erased with revisions. It is far too soon to break out the party hats.
The Next Wave of Consumer Spending for Back-to-School
If there is any overwhelming trend in purchasing behavior from post-recessionary consumers, it is that they actively manage their cashflows. No longer prone to spending on credit to suit their purchasing whims, cost-conscious consumers have not stopped shopping, but instead aggressively pursue bargains when they can afford to purchase discretionary goods. When the bargains offered meet their needs and wants, they are willing to open up their pocketbooks, and, if necessary, pull out their credit cards to pay for discounted goods. Retailers understand this mindset.
The Back-to-School spending period will be extended as consumers comparison shop for the best bargains across all retail touchpoints. Similar to the pattern SpendTrend found in the 2011 Back-to-School season, we expect consumers to migrate their purchases to deeply discounted items, generating lower average tickets but a higher number of transactions as they cherry pick the best bargains to round-out their seasonal purchases. Those discount-store retailers with a strong e-commerce presence are well aligned to take advantage of the higher average purchasing pattern for online sales, while still satisfying their in-store consumers.
However, retailers should also be prepared for a quick retreat in consumer purchases. Once all the Back-to-School items needed are crossed off the shopping lists, consumers will pull back on their spending to shore up their finances for the holiday spending cycle unless real improvements in wages and unemployment offer a clear sign of economic recovery.
Rikard Bandebo is First Data's head economist.