Will FOMO and YOLO lead to No Mo’?

Consumers remain remarkably spendy in the face of rising debt balances

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Retail data paints mixed picture on consumer health

Economic bulls point not only to the still-strong job market but also the latest retail sales data, which show increases from last year. Mastercard SpendingPulse reports that Black Friday sales increased 2.5% from a year earlier, broken down to a 1% increase in-store and an impressive 8% growth in e-commerce. Adobe Analytics saw total sales a little stronger, up 7.5% year over year (y/y). Those numbers aren’t adjusted for inflation, but it doesn’t appear that there was much inflation, and perhaps there was some deflation, in the holiday-related discretionary categories. So, while not tremendous, mid-single-digit growth in holiday retail sales suggests that consumers remain confident enough to continue to spend.

The counterpoint is that retail sales growth, which appears solid on the surface, is the result of consumers putting more purchases on unpaid credit cards, which are getting closer to being maxed out, while also utilizing buy-now, pay-later plans. Credit card balances increased 1.6% in October month over month versus a seasonally normal 0.7% increase. That resulted in over $1 trillion in total credit card balances, ahead of the typical seasonal peak, which would normally call for the year’s largest credit card statement to reach consumers in January. Bulls counter that, adjusted for inflation, current credit card balances are still below pre-pandemic levels despite the recent increase.


(Chart: Federal Reserve Bank of Boston)

But, perhaps more telling than the absolute credit card balances are the credit utilization rates among consumers whose credit card balances are 30 or more days past due — those are higher than pre-pandemic levels in nearly all income categories. Borrowers with statements 30 days or more past due, and with incomes below $75,000, are utilizing more than 80% of their available credit. Most workers in that group received significant raises the past few years, but some of the largest employers, such as some of the biggest retailers, have recently reported being overstaffed and/or having moderate expectations for labor cost inflation. In short, many consumers don’t have a lot of cushion and a recession would likely result in a large number of consumers defaulting on loans. One anecdote that I found interesting is that some student loan borrowers have apparently picked up side jobs to offset the return of the several-hundred-dollar monthly bill rather than cut back on spending — that seems consistent with retailers’ reports of having plenty of available workers.

I’m not the only one who sees a disconnect between consumer spending and consumer health. I saw this CNBC article, which gave it a name that was new to me – “Doom Spending,” which seems to be a natural extension of doom scrolling just with shopping to go along with the jealousy and despair that social media typically induces.

Inventory levels appear balanced overall as retailers focus on high-velocity items


SONAR: TRIS. USA, TRISG.USA

The National Retail Federation says inventories are in balance with no apparent stockouts or overstocks as highlighted in Mark Solomon’s article.

The SONAR chart above shows the seasonally adjusted retail inventory-to-sales ratio at 1.36 at the end of September (updated Nov. 15), up 2.3% y/y, which is roughly in line with what Mastercard SpendPulse just reported for Black Friday sales growth. In the months leading up to the pandemic, that ratio ranged from 1.4 to 1.7, which suggests that overall inventories are lean and we may see a surge in expedited freight demand as the holiday shopping season progresses. Higher interest rates increase the cost of carrying inventory, but one could argue that e-commerce and same-day delivery schedules, and retailers’ push to fulfill “the perfect order,” result in a higher new normal for inventory levels as more goods are stored closer to consumers’ homes.

Most publicly traded retailers reported lower inventory levels at the end of the third quarter, as compared to the year-ago level. One example is Target, which reported inventory levels down 14% y/y and down 19% y/y in discretionary categories. Several retailers highlighted a significant shift in their mix of inventory toward higher-velocity items that move best during the holidays. For example, Best Buy’s inventories are lower overall, but it has more video game consoles in stock. Inventory levels also remain elevated for some categories, such as furniture, where sales continue to decline by double digits y/y, hampered by slow existing home sales. All considered, we may see an uptick in expedited shipments in December, but inventories are more mixed than the macro data point suggests.

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