Consumers load up on debt to fund their spending

Private consumption remains fairly strong despite high inflation and rising interest rates. U.S. retailer sales totaled $696.4 billion in July, up 0.7% from June and easily beating Wall Street’s 0.4% increase. In the last 12 months retail sales he increased by 3.2%. The US Census Bureau’s monthly retail sales report consists of receipts from stores and distributors, and incorporates all in-store, internet, and catalog sales.

In July, 9 out of 13 retail sectors reported an increase in monthly sales. Furniture and home furnishing stores were the worst-performing sector, with monthly sales down 1.8%. This was followed by electronics and electronics retailers, which reported a month-on-month decline of 1.3%.

The sector that reported the greatest growth was non-store retailers, which consisted primarily of online retailers and catalog sales. The non-store retailer recorded a hefty 1.9% increase in monthly sales. This was primarily driven by Amazon Prime Day, Amazon’s signature annual event that offers shoppers great discounts and promotions. This year it was held over two days, July 11th and 12th.

Over the past two days, Amazon posted a record $12.7 billion in sales, up 6.1% year-over-year, according to Adobe Analytics estimates. Consumer insights firm Numerator further estimates that shoppers spent an average of $54.05 per order. Amazon said online shoppers purchased more than 375 million items during the two-day shopping event, up from 300 million last year.

It is unknown how long consumers will be able to keep their notebooks open. To pay the cost of rising prices, millions of consumers are being forced to withdraw money from their savings and retirement accounts. Americans are also heavily in debt.

U.S. household debt hit a record $17.6 trillion in the second quarter of the April-June quarter, according to the New York Fed. This is a 5.7% increase over the second quarter of last year and a nearly 20% increase over the second quarter of 2020. This household debt includes a record $1.3 trillion in credit card debt, reaching credit card levels for the first time in history. Debt topped the $1 trillion mark.

Inflation remains high. The last time inflation fell below the Federal Reserve’s 2% target rate was in February 2021, when inflation was reportedly just 1.7%. Inflation, which had been steadily declining over the past 12 months, suddenly rose to 3.2% from 3% in July. In an effort to curb inflation, the Federal Reserve has raised interest rates to their highest level in 22 years.

The combination of high inflation and rising interest rates is a powerful nexus. Together, these are major obstacles to the continued robustness of private consumption. But for now, consumers still seem to want to keep their wallets open.