Americans spent a bit more at retailers last month, providing a small boost to the economy just as the Federal Reserve considers how much to cut its key interest rate.
Retail sales ticked up 0.1% from July to August, after jumping the most in a year and a half the previous month, the Commerce Department said Tuesday. Online retailers, sporting goods stores, and home and garden stores all reported higher sales.
The data indicate that consumers are still able and willing to spend more despite the cumulative impact of three years of excess inflation and the higher interest rates intended to combat those rising prices. Average paychecks, particularly for lower-income Americans, have also risen sharply since the pandemic, which has allowed many Americans to continue spending even as many necessities became more expensive. And price increases are slowing, with inflation falling to a three-year low last month of 2.5%.
The impact of inflation and consumers’ health has been an ongoing issue in the presidential campaign, with former President Donald Trump blaming the Biden-Harris administration for the post-pandemic jump in prices. Vice President Kamala Harris has, in turn, charged that Trump’s claim that he will slap 10% to 20% tariffs on all imports would amount to a “Trump tax” that will raise prices further.
A slowdown in hiring and a recent rise in the unemployment rate have fueled concerns the economy is sputtering, yet steady spending should boost growth. The Federal Reserve’s Atlanta branch estimates that the economy grew at a solid 2.5% annual rate in the third quarter.
“With consumption still very healthy, for now, recession fears appear overblown,” Olivia Cross, North America economist at Capital Economics, said.
The Fed could provide a further boost to consumers and the economy by lowering borrowing costs. It is likely to reduce its key rate at its meetings in November and December as well as on Wednesday. Such cuts should, over time, lower rates for mortgages, auto loans, and credit cards. Average mortgage rates have already fallen in anticipation of the Fed’s actions.
Consumers have been showing signs of stress, with credit-card debt rising and savings rates falling, trends that could weigh on spending in future months.
Kamie Meeks, a 22-year-old college student in New York City, said that inflation has made her better at finding lower-priced goods. She does her food shopping at the discounter Aldi. She shops mostly online at Walmart and at Chinese retailers like Shein and Temu.
It’s easier to “find deals” online, Meeks said.
In August, sales jumped 1.4% for online retailers in August and rose 0.7% at health and personal care outlets. Yet they were flat for restaurants and bars, a sign that consumers are holding back from some discretionary spending.
Gas stations reported a 1.2% drop in sales, which mostly reflected a decline in prices last month. Auto sales also ticked lower.
On Wednesday, Fed policymakers will decide whether to cut their key interest rate by a typical quarter-point or a larger-than-usual half-point, from its current level of about 5.3%, a 23-year high.
Wall Street is increasingly expecting a reduction of a half-point. With inflation headed back to the Fed’s 2% target, many economists also argue that the central bank does not need to keep rates that high. At the same time, some Fed policymakers who worry that inflation could remain stuck at its current level of 2.5% may not want to cut rates that fast. They could point to solid retail sales as evidence that there is no need to rush rate cuts.
One reason inflation has fallen from a four-decade high of 9.1% in June 2022 has been consumers’ reluctance to pay some of the higher prices they’ve encountered at grocery stores, restaurants, and clothing stores. Instead, shoppers have traded down to store brands, sought out deals, or spent more at discount retailers. Some packaged food makers, fast-food restaurants, and retailers such as Target have responded by cutting prices or offering deals to entice shoppers.
Major retailers say that shoppers will likely remain cautious heading into the critical holiday season, so they’ll be pushing discounts.
“Overall, customers remained deal-focused and attracted to more-predictable sales moments with 4th of July, Black Friday in July and the beginning of back-to-school sales events,” Best Buy’s CEO Corie Barry said recently.
Break-ins and thefts can happen at any small business, no matter how tight the security.
In the retail sector alone, more than half of small businesses said they had been victims of shoplifting in the prior year, according to a 2022 survey by the U.S. Chamber of Commerce. And break-ins and thefts occur across all sectors.
So, small business owners need to prepare in advance and have a plan for dealing with a break-in or theft, to minimize damage.
Roxie Lubanovic, co-founder of Frostbeard Studio in Minneapolis, which makes candles, had her studio broken into in 2016 over a holiday weekend. Thieves stole equipment and supplies, then damaged locks and doors getting in and out. Insurance covered the losses, but it was still difficult to recover.
“The hardest part was feeling violated in a space we had put so much work into,” she said.
There are several steps small business owners should take after a theft or break-in occurs.
First, don’t wait to notify the police and file a police report. You can take inventory of stolen or damaged items after the police have finished their investigation.
Once you’ve inventoried and documented the damage, file an insurance claim. You’ll need photos or receipts for items stolen. Call your bank and notify them of what has occurred.
Have a transparent conversation with your employees about what happened. Analyze what went wrong and enhance security where needed. Once you have an updated business security plan, inform your employees about how the break-in has been addressed.
Lubanovic reviewed her security plan upgraded her security system and installed cameras, new locks, and an alarm.
“I also asked neighbors to keep an eye out and had employees stagger their schedules for a while so someone was always present during business hours,” she said. “Thankfully, we haven’t had another incident since.”
She advised small businesses to include building a strong relationship with their local community and neighboring businesses as part of their security plan, saying it “can be invaluable for support and vigilance.”
Rich Main, owner of Vista Glass in Tucson, Arizona, had his warehouse broken into six months ago, losing nearly $10,000 in equipment and supplies. He had to stop operations for two days waiting for replacements to arrive. Insurance only partly covered the damage.
“For other small businesses facing a similar situation, my advice would be to act quickly to secure your premises and reassure your customers,” he said. “It’s also crucial to review and update your insurance policy regularly to ensure adequate coverage.”
One tip: Check state regulations to see if aid is available. In New York, for example, the 2025 state budget will include a $5 million tax credit to help small businesses enhance their security measures, such as installing cameras. It also will include a $3,000 tax credit for small businesses that meet a spending threshold on retail theft prevention measures.
U.S. retailers will hire fewer seasonal workers this holiday season than last year due to a softer labor market and tighter consumer spending heading into the crucial shopping period, according to a report by Challenger, Gray & Christmas provided exclusively to Reuters.
Sam's Club, the membership-only warehouse owned by Walmart, is boosting pay for roughly 100,000 frontline workers.
The company created a road map for associates "to plan and pursue more predictable, longer-term financial futures." It can be seen as a way to boost and retain its current workforce in the highly competitive retail environment.
In the retail sector, turnover in 2022 averaged 60%, Sam's Club said.
Under Sam’s Club’s new plan, "hourly wages will progress faster in their pay range, expanding the increase to between 3% and 6% based on years of service." The average hourly rate for Sam’s Club associates is anticipated to be above $19. The company also announced that it's also giving associates the "potential to earn thousands of dollars annually in bonuses."
A shopper stocks up on merchandise at a Sam's Club store on January 12, 2018, in Streamwood, Illinois. ( Scott Olson/Getty Images / Getty Images)
The pay increase helps keep employees engaged and increases the likelihood that they will stay with the company. According to Sam's Club, the primary reason customers renew their membership is because of the experience they have with associates.
Sam’s Club's average hourly wage has increased nearly 30% over the last five years.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| WMT | WALMART INC. | 80.60 | +0.94 | +1.18% |
Sam's Club manager Carlos Limones restocks water during a heatwave on July 21, 2022, in Houston, Texas. (Brandon Bell/Getty Images / Getty Images)
"Our new approach is one step in a series of investments we’ve made in our people over the last several years, all designed to provide more meaningful jobs and build successful teams," Sam's Club CEO Chris Nicholas said in a statement.
The pay raise announcement comes just as retailers have started to prepare for the busy holiday season, which includes boosting their workforces.
Target and Aldi, for example, have already announced hiring sprees to help with the increase in shoppers throughout the season.