Grim retail sales point to US economy strain

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American consumers are starting to flinch. After a strong summer, retail sales have cooled and confidence has slipped to one of the weakest points since the pandemic. For an economy that leans so heavily on spending, that is not a trivial wobble.

What matters here is not the precise monthly print, but where it lands in the cycle. The savings buffer from the pandemic is mostly gone. Debt is more expensive. Prices are still higher than they were. In that setting even a modest softening in demand tells you households are running with less slack.

It also reminds you where the real risk sits. Higher income households can smooth through higher costs. Lower income households cannot. If this slowdown deepens it will not be evenly shared and the political fallout will follow the economic strain.

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CHART 1 • Grim retail sales point to US economy strain

The latest US retail sales data paint a worrying picture. After a long run of solid gains, September’s increase was much weaker and arrived just as consumer confidence fell back towards pandemic era lows. With inflation still squeezing real incomes and the labour market losing momentum, households are starting to hesitate.

This chart shows that monthly US retail sales have swung around all year. However, the broader pattern is a loss of speed. September’s 0.2% rise missed expectations and the Conference Board’s consumer confidence index has fallen from 95.5 in October to 88.7 in November, its second lowest level in five years. Americans are facing higher prices for food, fuel and housing alongside a cooling job market. Lower income households are feeling the greatest pressure while higher income consumers continue to spend, feeding what many economists now describe as a K shaped economy.

This weakness is emerging just as policymakers weigh their next move on interest rates. Retail spending is the backbone of the US economy and any sign of fatigue matters.

Source: Econovisuals

What worries me is not drama in the numbers, but the slow erosion of resilience behind them. Once people feel that every month is a stretch, they change how they behave. That shift in mood rarely shows up cleanly in any single indicator, but in hindsight it often marks the turn in the cycle.

I have got four more charts that build on this story, but they are for paid subscribers. Consider joining if you want the full edition.

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