📝 August Data Signs Consumer Spending Is Waning: Wells Fargo

See signs of consumer spending loosing momentum. We anticipate the economy entering a mild recession early next year and although we anticipated this retrenchment in consumer spending, this is not yet the start of the downturn. Consumer demand for services and experience-oriented spending remains intact, for now. This was evident in the 1.1% increase in spending in bars and restaurants.

Our inflation-adjusted estimate suggests control group sales declined 0.5%, and with revisions to past sales estimates July real sales were revised lower to a 0.3% decline from a modest 0.1% gain reported previously. Together, these developments position for weaker goods spending throughout the third quarter, and are further confirmation that consumers continue to pull back on goods spending albeit at a gradual pace.

Real retail sales are running around 8% above pre-pandemic levels. While that pales in comparison to the some 30% higher nominal sales are, it still emphasizes a high level of goods spending. Elevated consumption with still not fully restocked inventory levels can continue to exert upward pressure on prices and thus keep inflation running at a steep rate. This would make the Fed's job all the more challenging.

- Wells Fargo