U.S. Consumers' Status

Sebastien Callebaut -

Weaker Retail Sales, Higher Delinquencies

Dick’s Sporting Goods, a sporting-goods chain, had to revise its profit targets for the year downward due to missing Wall Street forecasts for the second quarter. The company's sales momentum slowed following a pandemic-driven surge in outdoor gear purchases, which left it with an excess inventory. Additionally, higher-than-anticipated instances of merchandise theft further affected its performance.

On the other hand, Macy’s saw declining sales in the June quarter and raised concerns about rising numbers of customers falling behind on their credit-card payments. These delinquencies serve as indicators of consumer financial well-being, posing a threat to a crucial revenue stream for the department-store chain.

  • Both Dick’s and Macy’s shares experienced substantial declines, with Dick’s plunging over 24% and Macy’s falling by 14% in a single trading day.
  • This raised concerns among investors about the broader state of consumer spending.

The situations at Dick’s and Macy’s highlight the persistent economic challenges faced by consumer goods companies. While consumers continue to spend, they are now more selective due to inflationary pressures on their budgets. As a result, they prioritize necessities like food and allocate more funds to services, which benefits retailers offering deals and essential items.

Post-Pandemic Travel Resurgence: Americans Flock Overseas

After experiencing restricted travel during 2020 and 2021 due to the pandemic, American travellers are rekindling their interest in international trips. While domestic leisure travel is stabilising, with strong vacation numbers but more moderate hotel and flight prices, foreign travel is roaring back, particularly towards Europe.

  • According to estimates from AAA, international travel bookings for 2023 surged by 40% compared to 2022 figures up to May.
  • While this is still slightly below the 2019 levels by about 2%, it represents a significant rebound considering some travellers faced delays in passport processing due to a surge in applications.
  • Transportation Security Administration data reveals that the average daily passenger count at U.S. airport checkpoints in June 2023 surpassed June 2019 numbers by 0.5%. Similarly, foreign airports are experiencing a surge in American travellers, leading to crowded customs lines.

Businesses confirm these trends, as airlines and companies like American Express continue to observe a robust demand for flights and vacations. The CEO of Delta Air Lines, Ed Bastian, emphasised the unprecedented demand in the travel industry during a recent investor event.

Credit Card Debt Grows

U.S. credit card debt crossed the $1 trillion mark in late July, but its proportion of the country's GDP remains lower than levels seen in 2010 and the start of the pandemic. This development holds importance due to a mix of factors, including increased consumer confidence, strengthened spending power amid controlled inflation, and the utilization of saved funds from the pandemic era for travel and experiences.

  • In the second quarter, overall credit card balances in the U.S. surged by $45 billion, marking a 4.6% increase from the previous quarter. Currently, the collective credit card debt stands at $1.03 trillion, a supported by data sourced from the Federal Reserve Bank of New York.
  • Interestingly, despite the Federal Reserve's bid to raise interest rates, the U.S. economy has not only held its ground but has even displayed unexpected resilience, with businesses and the government investing in projects like infrastructure and manufacturing.
  • This strength is founded on factors such as controlled inflation and a robust job market, which have contributed to heightened consumer confidence. Furthermore, consumers have stashed away around $4.1 trillion more in bank deposits compared to the pre-COVID era.

It's worth noting that while credit card debt has risen, it constitutes only about 6% of total household bank deposits, showcasing a comfortable margin for consumers to manage their debt obligations.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Kleomenis Spyroglou / Unsplash.