The Consumer Crunch: Tracing the Downfall of American Retail Sales
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In a stark portrayal of the economic pressures mounting on American households, recent data indicates a significant downturn in retail sales, suggesting that the once buoyant American consumer may be faltering under the weight of inflation, high-interest debt, and shrinking purchasing power.
Retail sales have experienced a precipitous drop of 0.8% in the past month, translating to an almost 10% annualized decline—a figure reminiscent of the most challenging periods during the COVID-19 lockdowns. This downturn marks the sharpest year-on-year decrease in consumer spending since those unprecedented times, with revisions even casting the previous month's data in a grimmer light.
Source: The Wall Street Journal
The troubling economic indicators do not end there. Nearly half of the American cardholders are now grappling with credit card balances, subject to exorbitant interest rates nearing 25%—a figure alarmingly close to those historically associated with organized crime. This is occurring in a climate where there are an estimated 600 million active credit cards in the United States.
The details are even more concerning when inflation adjustments are applied. Real total retail sales in the U.S. have fallen below the levels recorded in 2021, before the current wave of inflation took hold, essentially marking a stagnation in consumer spending power over the past three years.
The ripple effects of this economic strain are evident across various sectors, with the most significant pullbacks observed in the automotive and building materials markets—indicators that consumers are shying away from high-cost purchases. Gasoline, health products, miscellaneous retailers, clothing, and even sports equipment have all seen declines, painting a picture of a population increasingly opting to stay home and tighten their belts.
These observations are echoed by the University of Michigan's Index of Consumer Sentiment, a widely regarded measure of consumer confidence. While recent media reports may paint an optimistic picture, a longitudinal view of this index stretching back to 1960 reveals that current consumer sentiment is at levels typically only seen during recessions.
Source: Forbes
As retail sales join the ranks of industrial production, housing starts, and housing permits in signaling economic stagnation, the specter of stagflation looms larger. With inflation on the rise for four consecutive months, experts are raising alarms about the potential for a repeat of the 1970s' double peak stagflation—this time under an administration feared to be less equipped to manage a protracted economic downturn.
The question on everyone's mind now is: what comes next? As the situation unfolds, it will be critical to monitor these economic indicators for signs of either recovery or a deepening crisis.
