Consumers tighten their spending habits ahead of the holiday shopping season

“Sales have been somewhat uneven, and that gives us reason to be a little more cautious about the consumer than we were 90 days ago,” Walmart Chief Financial Officer John David Rainey said Thursday. to analysts on a call to discuss the retailer’s third-quarter results.

Consumer moderation was evident across the economy in October, as retail sales fell 0.1% from the previous month, the first such decline in six months, according to the Commerce Department. Spenders have increasingly adopted alternative payment methods, with “buy now, pay later” purchases increasing 6% compared to the same period last year, according to a report from Adobe Analytics.

Customers facing tight budgets are subjecting their purchases to greater scrutiny and asking themselves, “Will this really add value to my life?” Target Chief Growth Officer Christina Hennington said this week during an earnings call.

Other top retail executives expect more of the same: Macy’s CFO Adrian Mitchell warned that the company expects “the consumer will continue to be challenged » ; Katrina O’Connell, Gap’s chief financial officer, said the retailer was “just trying to stay prudent with the consumer”; Williams-Sonoma executives noted that the company faces “continued consumer hesitancy” even as the company remains optimistic about the holiday season.

The National Retail Federation, for its part, predicts that holiday shoppers will increase their spending compared to last year, but at a slower pace than in recent years. The group projects retail sales will rise 3 to 4 percent in November and December — a more modest rise than last year’s 5.4 percent rise — as Americans expect further uncertainty economic.

“People feel less secure in their spending when they have less confidence in their jobs,” said Jack Kleinhenz, the retail group’s chief economist, pointing to a recent rise in the unemployment rate despite a weaker job market historically strong. “The capacity to spend is there, the question now is whether there is the will.”

As a result, businesses are bracing for a leaner season, with seasonal job postings hitting their lowest level in a decade, according to Challenger, Gray & Christmas, a firm that tracks labor market trends.

Economists see good reason for buyers to be wary, as consumers and the economy itself appear to be at an inflection point.

Two years of searing inflation that sent prices to 40-year highs and strained household budgets finally appear to be over. cooling. But to control the phenomenon, the Federal Reserve raised interest rates to their highest level in 22 years, sending borrowing costs skyrocketing.

Consumers initially relied on emergency payments and pandemic debt forgiveness programs to turn their personal finances around as prices rose. After spending more than $2 trillion in savings since the pandemic, they have turned to credit cards and other borrowing in recent months — a development that now worries some economists.

Credit card debt has accumulated at a historically rapid rate – consumers added Their balances increased by $154 billion last quarter, the largest increase on record from the previous year, according to the Federal Reserve of New York. This debt has become much more expensive as interest rates have climbed, the average credit card interest rate rising from 16.3 percent two years ago to a record high of 20.7 percent, according to Bankrate.com.

Borrowers, for their part, are falling increasingly behind in their payments. Nearly 8% of total credit card debt is at least 30 days past due, the highest figure since the Great Recession.

Justin Begley, an economist at Moody’s Analytics, called the rise in credit card balances “concerning,” while noting that “American households remain in pretty good financial shape overall.”

The delinquency rate is expected to peak over the next year as wage gains continue to outpace price increases and interest rates fall, allowing some borrowers to refinance their debt, Begley added.

But for now, Americans’ economic outlook remains bleak. Consumer confidence this month fell to its lowest level since May, according to the University of Michigan. Shoppers are focusing on the prices of essentials such as gasoline and food, rather than the slower pace of increases, and are worrying on high interest rates and the effects of the wars in Ukraine and Gaza.

Other surveys confirm these results, with 81 percent of registered voters rating the economy is either “fair” or “poor” and only 19 percent called it “good” or “excellent” in a recent New York Times and Siena College poll.

Newly cautious consumers will respond by slowing their spending, but not stopping it completely, said Bob Schwartz, senior economist at Oxford Economics.

“People like to let off steam in surveys, but that’s not necessarily the way they behave,” Schwartz said. “I believe that we should not look at what people say but at what they do.”

Jaclyn Peiser contributed to this report.