Why U.S. Consumers Are Feeling Spent

The weak August retail sales report reflects the limited wherewithal Americans have to spend more

By Justin Lahart

August retail sales disappointed, falling 0.2% from July. Shoppers head toward a Target store in Brooklyn. Photo: Mark Kauzlarich/Bloomberg News

The thing about consumers is that they can only spend so much.

The Commerce Department reported retail sales figures on Friday, and they were weak. Overall sales fell 0.2% in August from July. Economists had expected them to rise. Sales figures for July and June were revised lower. September, when the brunt of Hurricanes Harvey and Irma show up in the data, will likely be a bad month as well.

Part of the problem is that, with wage growth muted and the saving rate low, Americans’ wherewithal to increase their spending is limited. Rebuilding and replacement efforts in the storms’ aftermaths, which will boost spending on items like lumber and cars in the coming fourth quarter, don’t change that. Moreover, the higher prices for gasoline and other items that the hurricanes ushered in will keep the money people do have to spend from stretching quite as far. Inflation-adjusted spending therefore will be weaker.

Personal saving rate

U.S. income growth has been muted recently. Hourly wages only have been gaining about 2.5% annually, and, although job gains have added to the number of people drawing a paycheck, hiring growth has moderated. Meanwhile, Americans have been supporting their spending by saving less. As of July, the personal saving rate—the share of after-tax income that wasn’t spent—stood at just 3.5%. That compares with 5.1% a year earlier.

As a result, the paths to stronger spending gains are rather limited. One would be for job growth to reaccelerate. Another would be for wage growth to finally start picking up. Or people could save even less—something that might occur temporarily as households in hurricane-hit areas draw down savings to cover losses, though that isn’t sustainable.

Through much of the fall, the problem of Americans’ limited spending power will be compounded by the higher prices they will be paying for many items as a result of the hurricanes. Chief among them is gasoline: As of Monday, a gallon of regular fetched $2.69 nationally, according to the Energy Information Administration, versus $2.40 two weeks earlier. Car prices will likely be firmer as people in the Houston area replace vehicles lost to Harvey. Building material costs also are rising.

It is hardly the environment struggling retailers wanted to face this fall. Investors who hoped this would be the year the U.S. economy finally pulled itself free of its low-growth morass will probably have to wait some more.

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