Consumers have 'ability to spend' but remain mindful of prices

Thu, Mar 14, 2024, 9:51 AM

The February Retail Sales report came in hotter-than-expected, revealing a rebound in consumer spending trends. Mastercard Economics Institute Chief US Economist Michelle Meyer joins Yahoo Finance Live to discuss what this means for the consumer.

Meyer notes that the February retail sales showed a "return to trend-like expansion" with characteristics that were seen before the holiday season. She highlights the consumer as being "empowered in this environment," as easing prices across many categories are falling and giving consumers "real purchasing power."

Meyer points out the "consistency of the story" with outperformance in online spending and "experience-based" spending. She notes that this shows "consumers have the ability to spend;" however, they are being mindful of prices and prioritizing their spending.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

RACHELLE AKUFFO: All right. Well, shifting gears to look at retail sales rebounding in February after seeing their steepest decline in nearly a year during the prior month. For more on the modest rebound in retail sales and what this signals about the consumer in the months ahead is Michelle Meyer, Chief Economist at the Mastercard Economics Institute. Thank you for joining us this morning. So Michelle, I want to get your takeaways for just how well the consumer is faring, given what we've seen with this rebound in retail sales, modest though as it was.

MICHELLE MEYER: Well, it was nice to see the trend in February return to what we were seeing before the noise in January. We know that the turn of the year tends to be very volatile, high seasonality, particularly around the holidays. So it was a little bit hard to really understand where the consumer was going at the start of the year just from January data points.

And now that we have the full month of February both from the Census Bureau's retail sales numbers, from our own insights through SpendingPulse, we certainly did see a return to trend-like expansion February with characteristics that were very similar to what we were seeing at the end of last year for the consumer.

AKIKO FUJITA: Yeah. Michelle, to your point, data is always backwards-looking. But when you think of what we've heard so far from some of these retailers on where the consumer is, what does that tell you about how much upside we can continue to see moving forward, given the state of where the consumer is today?

MICHELLE MEYER: Yeah. Look, I think the consumers is empowered in this environment. And the reason I say that is they are facing an environment where, for many categories, prices are now falling. Think about what we saw even in today's report with some of these larger durable goods items seeing declines. Part of that is because prices are falling. And that means that consumers have a bit more real purchasing power.

When you look at aggregate wages versus overall CPI, you are seeing wage growth outpace inflation of prices of goods and services, which means that, again, you have that real purchasing power. So I think that's supportive. I think that's quite helpful. And I think that's reflective of the fact that we're evolving in where we are in the business cycle where the labor market has remained quite resilient. But yet we have seen easing across some categories of the consumer price basket. Not all, but many.

RACHELLE AKUFFO: So Michelle, let's dive into that as we look at what we've seen with goods, the growth of goods retail sales versus services here. As we look at some of the things in the SpendingPulse February survey here, what stands out to you as perhaps some surprises or some strengths that you're continuing to see here?

MICHELLE MEYER: Well, it's pretty amazing the consistency of the story, which is twofold. One, we are continuing to see outperformance in terms of spending online versus in store. And that is also reflected in a broad data set. So you are seeing consumers continue to embrace that online presence.

You're also seeing evidence of experience-based spending still doing well, whether that's restaurant or travel or even these moments in time where consumers are spending. We recently published a report with the Mastercard Economics Institute looking at how the Taylor Swift concerts impacted spending behavior across the US as an indication of what's to come as she enters the scene abroad.

And it's meaningful, where consumers really do show up and spend in a significant way for these moments in time. We looked at the ski season as well with our research to try to identify how consumers were spending on specific travel moments. So consumers have the ability to spend. They are prioritizing, they're being mindful of prices, but they have that power right now.

AKIKO FUJITA: Michelle Meyer, Mastercard Economics Institute Chief US Economist, good to talk to you today. Appreciate the time.

MICHELLE MEYER: Same to you. Thank you.

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Consumers have 'ability to spend' but remain mindful of prices

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