Grumpy shoppers prop up consumer companies

Ask Americans how the economy is doing, and you probably won’t get a glowing review. Consumer confidence just fell to a seven-month low in August, as households grew more worried about jobs, business conditions, and inflation.

But while sentiment continues to sour, actions speak louder than words—and some companies are seeing something very different from consumers.

Visa and Mastercard shares both hit record closing highs yesterday, backed by remarkably strong consumer spending. Visa’s quarterly payment volume topped $4 trillion for the first time, up 10% in constant currency terms, while Mastercard’s gross dollar volume climbed 8% to $2.9 trillion.

It’s worth noting that other major consumer bellwethers, including Expedia and Coca-Cola, also notched records yesterday—more proof that spending remains alive and well.

Picky, not broke

Inflation has picked up this year, driven in part by higher energy prices and tariff pressures. And yes, some of the growth in consumer spending simply reflects higher prices translating into more dollars at the register. But wage growth is still roughly keeping pace with inflation, helping households preserve enough purchasing power to keep spending.

Consumers are just more selective about where that money goes. In fact, Walmart, Target, and Home Depot have all pointed to shoppers searching for value and pulling back on bigger purchases.

Walmart, for example, cut prices on more than 11,000 items during the quarter—roughly twice as many adjustments as usual—while Home Depot said customers are favoring purchases that don’t require financing and tackling smaller projects instead of expensive remodels.

“US consumers consistently find ways to spend money, which is shocking and a little worrisome,” Greg Portell, lead partner of global markets at Kearney, told Bloomberg.

All this spending sounds great for the economy, but the problem is that consumers have increasingly leaned on savings, wealth gains, and credit to support their shopping habits. The personal saving rate has fallen every month this year, reaching just 2.7% in June—meaning Americans are saving less than 3 cents of every dollar in disposable income.

The economy’s next test

That’s not very sustainable, and is probably why economists forecast some cooling: Bloomberg’s August survey sees consumer spending growing at a 2.1% annualized pace in the third quarter, down from 3.2% in Q2. At the same time, the Conference Board’s Expectations Index—which measures how households think the economy will look six months from now—fell 7.8% in August.

That matters because consumer spending is the engine of the US economy, accounting for roughly 70% of the country’s economic activity. And if Americans eventually start spending the way they already feel, the economy could soon have a big problem on its hands.—SY