Americans increase spending modestly in June as inflation eases and the job market remains strong

Americans increased their spending modestly last month as inflation eased in many areas and the job market remains remarkably strong

Americans increased their spending modestly last month as inflation eased in many areas and the job market remains remarkably strong.

Retail sales rose 0.2% from May to June, a bit smaller than what analysts were expected. The gain followed a revised 0.5% increase the previous month, the Commerce Department reported Tuesday.

Excluding autos and gas, sales rose a modest 0.3%.

Sales at grocery stores fell 0.7%, while business at clothing stores rose 0.6%. At restaurants, sales rose 0.1%. Online sales rose 1.9%.

The uptick in sales follows an increase in May that pointed to an economy that remains resilient despite rising prices. Yet spending has been volatile this year after surging nearly 3% in January. Sales tumbled in February and March before recovering in April and May.

There is some evidence of a pushback from consumers to the prices they’ve been paying everywhere, however. That has been reflected in financial reports from food producers like PepsiCo and Conagra Brands.

U.S. data on inflation, the most recent arriving last week, showed that consumer inflation reached its lowest point since early 2021. Prices rose just 0.2% from May to June thanks to easing prices on gasoline, airline fares, used cars and groceries. Inflation is just up 3% over the last 12 months. But Americans still face surging prices for some goods and services as well, like auto insurance.

Consumers, whose spending accounts for about 70% of U.S. economic activity, have been the engine behind the economic recovery from a slowdown during the pandemic. Government relief checks, the suspension of student loan payments and super-low interest rates helped.

Demand outpaced what factories could produce and what ports and freight yards could handle, leading to shortages, delays – and skyrocketing prices.

That gave companies “abnormal power to push up prices’’ and pass higher costs along to consumers – clout they hadn’t had for decades, Simon MacAdam, senior global economist at Capital Economics, wrote last month.

That dynamic has shifted, however.

Low interest rates are long gone: The Federal Reserve began aggressively hiking rates in March 2022. The student loan moratorium – which allowed Americans to divert money that used to go to loan payments to dinners out and new furniture – ends later this year.

And the savings that Americans had stashed away at the peak of the pandemic — when they were receiving government relief checks and saving money while hunkered down at home — are vanishing. Fed researchers have reported that consumers depleted excess’ savings in the first three months of 2023.

All of which means that consumers may no longer be willing – or able – to tolerate elevated prices.

Ryan Dixon, who recently moved from Florida to a farm in Hillsboro, Tennessee, said he didn’t notice prices increasing as much in 2020 and 2021 because of the COVID-19 relief payments he was getting from the government. But as that money ran low, things grew more difficult to afford.

Now, he keeps track of the coupons in the Target and Walmart apps, scours the grocery aisles for deals on meat and buys store-brand canned goods.

“I’m not buying Del Monte and Green Giant anymore. I’m buying the Walmart brand,” he said.

There are a handful of brands he loves and won’t substitute, including Mountain Dew and Hidden Valley Ranch dressing. But for most other products, including shampoo, he’ll use whatever is on sale.

“I never thought I would shop like my mother. But if I don’t have a coupon for it, I don’t get it,” Dixon said.

That story appears to be playing out for producers who faced also faced rising prices and input costs, including labor.

Conagra Brands said during a fourth-quarter earnings call last week that smaller price increases had not translated to higher sales volume. That is a quick turn from the third quarter when price increases __ which topped 15% that quarter __ did not dent demand.

“It’s not a trade down within individual categories to lower-priced alternatives. It looks, optically, more like a cutting back and what I call hunkering down,” Conagra CEO Sean Connolly told analysts. “And one thing I know for sure, people aren’t eating less. So they’re making choices to manage their budget.”

PepsiCo said last week that higher prices lifted the company’s revenue in the second quarter but consumer demand faded. The company said that price increases could start to moderate in the second half of this year.

Stew Leonard Jr., president and CEO of Stew Leonard’s, a supermarket chain that operates stores in Connecticut, New York and New Jersey, said that he’s told the big consumer product companies that he wouldn’t accept any more price increases because he believes customers have reached a tipping point.

“Enough is enough, ” said Leonard, who said he’s being a little more flexible with beef and chicken suppliers, which are typically family owned.

The chain has been expanding its private label business to offer more affordable choices to shoppers, including ice cream, tortilla chips and potato chips.

———

AP Economics Writer Wiseman reported from Washington. AP Economics Writer Chris Rugaber contributed to this story.