by Nicholas Hamner
Investment Advisor Representative
[email protected]
Retail sales dropped 0.6% in July, the largest monthly decrease since May 2025. The University of Michigan’s consumer sentiment index shows weakening consumer confidence in August amid continued frustration with high prices. Combined, those are two very reliable economic indicators showing spending momentum has cooled and that consumers are concerned about the economy.
Some analysts are quick to point out that reacting to these reports at all would be an overreaction. Yes, online sales slid 2.2%, but Amazon moved Prime Day up into late June and likely shifted some sales out of July. Auto and parts sales declined 1.8%, but that should be expected after June incentives ended, and lower gas-station sales also reduced the headline figure. They point out that restaurants, apparel, furniture, home furnishings, building materials and garden suppliers all recorded gains. And they say wealthier households, helped by stock-market gains, remain better equipped to spend.
So the question becomes, are these analysts correct in that these drops are just singular data points? Single marks on an ever-growing line? After all, inflation was a concern 50 years ago and will still be a concern 50 years from now. Or should we treat these figures of waning consumer confidence as an alarm bell?
A recent ADP and University of Chicago study touched on why inflation is a long-term sticking point and is not a short-term, isolated issue: workers who remained in the same job from 2021 through 2024 experienced an average 9% inflation-adjusted wage loss. Prices may be rising more slowly, but earlier losses in purchasing power have not simply been reversed.
Elsewhere, an admittedly less academic survey from payday loan provider Cashback Loans illustrates these long-term impacts on a household level. Among the 3,000 respondents who participated in Cashback’s survey, 42% said they cut grocery spending in the previous 12 months, 31% canceled monthly subscriptions, 25% dipped into savings for everyday expenses, and 21% delayed medical or dental care. Respondents also revealed how this long-term reduction in pay impacted their ability to have any sort of economic cushion. Forty-four percent reported no dedicated emergency savings, and 37% said they borrowed during the past year to cover essentials such as rent, bills, groceries or gas.
So again, is this change in consumer behavior and sentiment just a temporary blip on a line of data points, or is it an alarm bell for the economy? If fuel, food, and borrowing costs remain high and consumers remain unable or unwilling to buy, the cautious behavior we’re seeing now at the grocery store, gas stations, and beyond could spread. While the markets have remained relatively strong through the troubling economic conditions of the past few years, and the age-old saying goes, “the market is not the economy, and the economy is not the market,” if pressure continues to build it could very easily impact the markets. What happens to businesses with no customers?
How likely is a downturn, a bear market, or even a recession? Who can say? Our crystal balls remain cloudy. Sometimes I wonder why we even have them…
If you look at the news and feel like the dark clouds are hiding a greater storm and you want to make a plan for a potential increase in volatility… or potentially a downturn… that’s why we’re here. Reach out to me, Peter, Rob, Jeremy, Kyle, or Austin and find a time to sit down with us. Whether you need reassurance or a complete revamp, we will figure out what you need to sleep well at night.