Wolf Richter www.wolfstreet.com [6] www.amazon.com/author/wolfrichter [7]
Consumers are “straining against rising prices on daily essentials to afford summer travel, dining out, and discretionary household purchases – the kinds of purchases that ordinarily keep an economy humming.” That’s what Gallup found when it used a new survey to dive deeper into consumer spending.
Its regular monthly survey [8] has been mixed. The average dollar amount consumers spent in June swooned to $91 per day from $98 in May, after a crummy January-April period ranging from $78 to $88 per day. The May spurt seems to have been an outlier that had given rise to a lot of speculation consumers would finally hit “escape velocity,” now obviated by events. But from 2012 until late last year, the averages had been rising.
So Gallup dove deeper [9] into the issue with its new survey conducted in mid-June to sort through what consumers are spending more or less money on. And what it found was that they’re buying a little more – “just not the things they want.”
They’re spending more on things they have to buy, and in many instances they’re spending more in these categories because prices have jumped. At the top of the list: groceries.
- Groceries: 59% spent more, 10% spent less.
- Gasoline: 58% spent more, 12% spent less
- Utilities: 45% spent more, 10% spent less
- Healthcare: 42% spent, 8% spent less
- Toilet paper and other household goods: 32% spent more, 5% spent less
- Rent, the biggie: 32% spent more, 9% spent less.
These categories are household essentials. They’re on top of the priority list. And in order to meet the requirements of these items, consumers are cutting back where they can. Gallup found that “the increasing cost of essential items is further constraining family budgets already hit hard by the Great Recession and still reeling from a stagnant economy.” Hence, the less essential the expense, the more it got cut. Here is the bottom of the list, which explains part of the recent retail woes:
- Retirement savings: 18% spent more, 17% spent less.
- Leisure activities: 28% spent more, 31% spent less
- Clothing: 25% spent more, 30% spent less
- Consumer electronics: 20% spent more, 31% spent less
- Travel: 26% spent more, 38% spent less
- Dining out: 26% spent more, 38% spent less
Then there are summer travel plans, so future spending. They show just how bifurcated the economy has become. On the positive side of the ledger, 69% of American plan to travel this summer, the highest since 2006, and far more than the 52% in 2009 during the depth of the Great Recession. And those travelers intend to spend more on transportation, food, lodging, and entertainment than last year, as Gallup put it, “further pressuring their already-strained budgets.”
But about one-third plan to spend only one night or less away from home. So not exactly a long vacation. And 36% are planning to travel less than last year, even worse than in the terrible year of 2010, when 33% were cutting back from the already terrible year 2009.
And what about “escape velocity” in consumer spending? Despite what Wall Street economists and other hype mongers have been predicting for five years in a row, Gallop soberly puts slams the lid on those speculations:
If there was any doubt that the U.S. economy is still struggling to get back on its feet, the results of this poll reinforce that reality. Because consumer spending is the lifeblood of a healthy economy, these findings suggest that discretionary spending still has a ways to go before it will fuel the kind of economic growth Americans have been hoping for.
Americans who are struggling to make ends meet, and who cut discretionary spending in order to pay for essentials, form a large part of the middle class. But there are others who don’t have these problems, who are doing well. A dichotomy that shows up in “dining out.”
“Dining out” made the bottom of the list: 38% of the people cut back, while only 26% spent more on it. The restaurant industry should be groaning in pain.
But someone must be eating out. The Restaurant Performance Index (RPI) for May, released [10] on June 30, rose again, “driven by stronger sales and traffic levels and an increasingly optimistic outlook among restaurant operators.” May was the third month in a row that the Current Situation Index was above 100, and therefore in expansion mode.
Smell of conundrum? Nope. But a sign of America’s dual-track society. The 26% of consumer who spent more on dining out might well belong to that group whose median household income exceeds $50k a year. They feel flush and their confidence has soared to post-recession highs. But the confidence of consumers making less than $50k a year has barely moved up from the recession bottom. And the gap between the two is at a record high. Read…. This Chart Truly Depicts What’s Wrong With the ‘Recovery’ in America [11]