Retail sales tick up in August, but holiday outlook is uncertain

If retailers were looking for a clearer picture of the US economy heading into the holiday shopping season, a series of new data points this week proved stubbornly inconclusive.

Retail sales increased 0.6% from July to August, according to the latest Census Bureau data, though the bulk of these gains came from higher car and gasoline prices. The National Retail Federation’s own measure of retail sales, which excludes gas stations, car dealers, and restaurants, showed a more modest 0.1% rise.

Slowing momentum: “Households have the capacity to spend, but momentum is slowing, in part because savings built up during the pandemic are running lower and credit costs are rising,” NRF Chief Economist Jack Kleinhenz said in a press release.

He added that while growth has slowed, “there is little hint of any sudden collapse.”

Not collapsing might sound like a low bar to clear, but it might be the best retailers can hope for this holiday season, which some predict will be the slowest in five years.

Deloitte this week forecasted that holiday retail sales will grow between 3.5% and 4.6% in 2023, which is down significantly from the 7.6% increase in 2022. However, as the report pointed out, last year’s jump in sales was mainly due to higher inflation, which continues to moderate.

That trend was clearest in the latest Adobe Digital Price Index (DPI): Online prices hit a 40-month year over year low in August, despite the monthly measure rising 0.4% as retailers offered fewer discounts after Amazon Prime Day in July.

The latest Consumer Price Index was also a mixed bag in terms of showing a clear direction for prices. The headline monthly number was up 0.6%, which is triple the 0.2% rate of the previous two months, and the year over year measure ticked up to 3.7%.

More discounting: But again, a jump in gasoline prices was the biggest contributor to the bump in inflation—though for consumers it’s all coming out of the same wallet.

In the meantime, consumers continue to focus their spending on essentials and choose lower-cost options when they can, as evidenced by discount chain Dollarama beating its quarterly sales estimates and raising its annual profit forecast.

“Consumers are focused on household priorities, as evident by spending this back-to-school season,” NRF President and CEO Matthew Shay said in a statement.