Are Americans still reaching for their wallets, even as high inflation forces households to contend with higher bills?
The fierce debate over whether the United States is in a recession could hinge on that question, sending economists and investors scrambling to unearth more data that provides clarity.
One important set of numbers arrives Wednesday morning, when the US Census Bureau is set to release its readout on retail sales for July.
Economists polled by Refinitiv expect to learn that sales rose just 0.1% compared to the previous month. In June, sales climbed 1% month-over-month and 8.4% compared to 2021.
But Bank of America thinks that "ostensible weakness" is a bit misleading. It believes any drop-off "was likely driven by the plunge in gas prices, which appears to have opened up the consumer wallet for spending in other categories."
"Combined with softer-than-expected inflation, this should imply solid gains in real consumer spending in July," its economists said in a recent note to clients.
Earnings from top retail chains on Tuesday bolstered the sense that the country's shoppers are still spending. Walmart said it expects earnings will fall in the second half of the year, but is predicting a smaller drop in profit than it had previously penciled in. Shares climbed more than 5%.
America's biggest retailer has had to cut prices on items like clothing in order to clear out excess inventory as its customers shift their shopping habits.
"We expect inflation to continue to influence the choices that families make, and we're adjusting to that reality so we can help them more," CEO Doug McMillon said on a call with investors.
Even food preferences are changing, Walmart's chief financial officer added.
"Instead of deli meats at higher price points, customers are increasing purchases of hot dogs as well as canned tuna or chicken," he said.
But Walmart's reputation as a bargain center positions it well as families opt to prioritize savings. Comparable sales at US stores grew 6.5%, "reflecting strong grocery sales at a higher average ticket size."
Results from rival Target that hit Wednesday morning weren't as reassuring. Comparable sales rose 2.6% as customers bought food, beauty products and household essentials. Yet the company's profit nosedived, dropping 90% from one year ago as discounting weighed on income.
Still, the company stuck with its annual guidance. Shares are down more than 3% in premarket trading.
The big picture: Retail sales are a key datapoint as the Federal Reserve weighs its next move. Minutes from the central bank's latest meeting post later Wednesday.
News that the US economy added more than half a million jobs in July has supported the view that the Fed won't ease up on its tough program of interest rate hikes any time soon. If the employment situation remains strong, spending stays solid and financial conditions continue to ease, policymakers will have greater confidence they can bring inflation to heel without triggering a sharp economic contraction.
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