NAFCU: Retail Sales Gain Shows Economy’s Resilience

NAFCU Chief Economist Curt Long said the Census Bureau’s August retail sales report released Thursday shows signs that the rise in COVID-19 cases is beginning to affect parts of the economy, but overall consumer spending is proving resilient.

The Census Bureau reported that Americans spent a seasonally adjusted $619 billion in August at retailers, including restaurants and bars. That amount was 0.7% higher than in July and followed a 1.8% drop from June to July.

But excluding autos and parts, retail sales rose 1.8% to $497 billion in August after falling 1% in July.

“Retail sales rose sharply in August even as auto sales continue to fall,” Long said. “Growth was driven by non-store retailers and general merchandisers — both sectors that saw a significant drop in July.

CO-OP Financial Services, the payments CUSO based in Rancho Cucamonga, Calif., on Wednesday also reported an apparent increase in retail spending from July to August among its base of credit union members.

PSCU, a St. Petersburg, Fla.-based payments CUSO, reported Thursday that the average credit card account balances for its same-store population was $2,650 in August, up just $5 from July and down $148 from August 2020. Compared to August 2019, average credit card account balances have dropped 12%, or $356.

Census reported sales by restaurants and bars were flat at $72 billion in August after rising 1.3% in July. By contrast, grocery store sales rose 2.1% to $68 billion in August after falling 0.4% in July.

“Restaurant sales remain flat as grocery store sales rise, so the spread of the Delta variant is having an effect on the normalization of spending patterns for now,” Long said. “Consumers have also bought so many goods over the past 18 months of activity restrictions that goods demand in some categories is spent.”

However, Long said a bigger problem is that the shortage of new cars continues to drag down auto sales. Sales of cars and parts accounted for 20% of sales and fell 3.6% to $121 billion in August after falling 4.6% in July.

“The good news is that despite the growth of COVID cases during the summer, the reduction in fiscal stimulus, and the rotation from goods to services consumption, sales levels remain well above their pre-COVID trend.

“That momentum will be important moving forward, as reports suggest that shipping delays could impact the holiday shopping season. We could see some volatility ahead, but consumer confidence is strong and should be enough to maintain relatively stable growth over the near term,” Long said.

CO-OP’s report said the dollar amount of its members’ retail spending rose 13% from July to August by credit card, but was flat by debit.

Thursday’s PSCU Payments Index showed gains for both credit and debit card spending in August compared with a year ago and two years ago.

“While consumer confidence reached its lowest level in six months, consumer spending is holding steady with no significant fluctuations reported for the third consecutive month,” Kenna Smith, vice president of marketing operations for PSCU’s Advisors Plus, said.

Both reports use “same-store” comparisons, which means credit unions’ reports in August 2021 reports are reported in the previous periods.

The PSCU Payments Index represents a total of 2.4 billion transactions valued at $119 billion of credit and debit card activity from September 2020 to August 2021. PSCU’s total volume is more than twice that.

Both reports also showed percentage movements by credit and by debit separately, but lacked any values or weighting to gauge a category’s overall change.

For example, the CO-OP report seemed to mirror the Census report showing rising grocery spending and falling restaurant spending. But CO-OP’s data was unclear.

CO-OP reported that spending on “dining/entertainment” rose 1% by credit and fell 4% by debit, while spending on groceries rose 24% by credit and fell 4% by debit.

John Patton, CO-OP’s senior payments advisor, said the report shows a shift toward credit card spending occurring as members feel more comfortable with their financial situations.

“Consumers used their stimulus payments from earlier this year to pay down credit card balances, as well as took advantage of low interest rates to refinance their balances into installment loans,” Patton said. “They kept their lines open, and are now opening their wallets to take advantage of that additional availability.”

Beth Phillips, CO-OP’s director of strategic portfolio growth, said credit unions should take advantage of their members’ increasing use of credit this fall to prepare for an early holiday shopping season.

“We recommend ramping up your rewards and incentives now, before your members begin their holiday shopping,” Phillips said. “Look at the data to see where your members are spending, and target those categories and merchants with special incentives to position your card top of wallet. Plus, begin planning for post-holiday balance growth opportunities now.”