New data this week shows that US consumers are starting to scale back spending, the largest retailers are warning of trouble ahead, bank accounts are dwindling and debt is growing.
That's bad news for the economy.
What's happening: Retail sales for April were a mixed bag. Spending at US retailers rose in April following two months of declines. That means the US consumer is still fueling the economy.
But sales grew by a muted 0.4% in April from March, the Department of Commerce reported on Tuesday, and were up just 0.2% on the same month last year.
"Retail growth held on by the skin of its teeth this month," said Neil Saunders, managing director of GlobalData. "While any growth is welcome, this was the shallowest increase in 31 months and marks a very significant deterioration compared to recent performance."
The evidence, he said, "suggests that a consumer slowdown is now firmly underway."
Home Depot broke a three-year growth streak this week after it reported a dismal quarter. The retailer posted disappointing sales for its first quarter and lowered its outlook for the year as customers slowed their spending.
"After a three-year period of unprecedented growth for our sector, during which we grew sales by over $47 billion, we expected that fiscal 2023 would be a year of moderation for the home improvement market," Home Depot CEO Ted Decker said Tuesday.
Target also reported lackluster earnings this week. Total sales ticked up 0.5% during its latest quarter from a year ago, the company said Wednesday. But digital sales fell, and the company said shoppers pulled back on discretionary purchases in what CEO Brian Cornell called a "very challenging environment" for consumers.
At the same time, Americans' debt levels have grown to new heights. With inflation high and savings dwindling, household debt balances set a record high of $17.05 trillion during the first quarter, growing $148 billion or 0.9% from the fourth quarter of last year, the Federal Reserve Bank of New York reported Monday.
That debt load has spiked by $2.9 trillion since the end of 2019.
Why it matters: Bank executives, debt ceiling negotiators and Fed economists are all very important people, but the fate of the US economy rests on the shoulders of consumers.
An American armed with a credit card and a shopping list does more to swing the economy than people crunching numbers in Wall Street offices.
That's because consumer spending accounts for about 70% of America's gross domestic product, the broadest measure of economic activity, so it's nearly impossible to enter a recession when spending is growing.
Despite elevated inflation and interest rates, teetering regional banks and a possible US debt default, the economy has remained resilient because Americans keep shopping. That resiliency now appears to be waning, supporting the consensus among analysts that a recession is likely to begin in the second half of 2023.
What's next: Walmart reports earnings on Thursday morning. Last quarter the mega-retailer managed to beat Wall Street estimates, and analysts expect the company to report another strong quarter as consumers spend more on necessities.
But Walmart is a bit of an anomaly — the retailer's shares are up more than 5% year-to-date, outperforming the broader consumer staples sector by about 1.5%.
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