Market analyst Mike Maharrey from FX168 finance and economics news agency (Asia Pacific) said that the United States is finding it hard to pretend its economy is strong. He pointed out that there is increasing evidence that American consumers' spending power has dried up. He mentioned that Americans spent $1.9 trillion of their savings in just two years, and declining retail sales is another sign that they may be in trouble.
US retail sales in May increased only 0.1%, lower than the expected 0.2%. Excluding the auto sector, retail sales declined by 0.1%. Meanwhile, retail sales in April were downgraded from being neutral down to a decrease of 0.2%.
On an annual basis, retail sales only increased by 2.3%.
"When looking at these numbers, you might think, 'Great, people are buying more things'. But the raw retail sales figures do not tell the whole story because they are not adjusted for inflation. In fact, Americans are spending more than last year, but they are buying less," Mike warned.
(Source: GoldSeek)
Retail sales always reflect changes in prices and the quantity of goods consumers purchase. When prices rise, retail sales increase, unless consumers cut back enough on spending to offset the price rise. During deflation (when prices fall), retail sales decrease unless people increase purchasing enough to offset the price fall.
In other words, just because US dollar components sales have increased does not mean people are buying more components. They may be buying less, but paying more for them. Conversely, a decline in sales may reflect a drop in prices and not necessarily mean people are buying fewer components.
If we take into account the 3.3% consumer price index (CPI) increase per year, it is clear that Americans have not even kept up with the pace of inflation.
Internally, Americans seem to be cutting back on discretionary spending. Bar and restaurant sales decreased by 0.4%, and home retailers' sales decreased by 1.1%.
Not only have retail sales declined, but in the past few months, the market has also seen a sudden decline in consumer debt growth.
Revolving debt (which primarily reflects credit card balances) decreased by $500 million in April, a 0.4% decline.
Mike said: "This is probably an indication that Americans have started using their credit cards more than they can afford to repay."
Currently, revolving debt alone is as high as $1.34 trillion. If we include non-revolving credit, including student loans and car loans, as well as loans for other big-ticket items, Americans' total debt amounts to $5.05 trillion, not including mortgages.
Americans used stimulus money during the pandemic to pay off credit card debt and increase savings, and then prices began to soar.
As prices skyrocketed, Americans used their savings to maintain balance. Total savings peaked at $2.1 trillion in August 2021. As of June 2023, the Federal Reserve Bank of San Francisco estimates total savings have fallen to $190 billion.
In other words, Americans spent 19 trillion dollars of savings in just two years.
"Then they started using their credit cards," Mike pointed out.
He concluded: "Now it seems that credit cards have been pushed to the limit, which we can see from both consumer debt data and declining retail sales. This soft landing may be bumpy."