Home Consumer debt “It’s a double whammy”: September retail sales and inflation do not bode well for the holiday shopping season. Here’s why.

“It’s a double whammy”: September retail sales and inflation do not bode well for the holiday shopping season. Here’s why.

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By Andrew Keshner

There are warning signs holiday shoppers are already cutting back on spending

The latest retail sales report may have put some coal in the bottoms of holiday shoppers.

Retail sales stagnated in September, the government said on Friday, another sign that the economy is likely to slow in coming months as interest rates rise and consumers cut back on spending. Retail sales represent a significant portion of consumer spending.

Retail sales are expected to rise 0.3% in September, according to economists polled by The Wall Street Journal. Revenue rose 0.3% excluding car dealerships. (Automobile sales can skew the overall pattern of retail spending.)

As September inflation data arrives warmer than expected on Thursday, Federal Reserve watchers now say the central bank is firmly poised to rack up another whopping 75 basis point hike in its influential interest rate. in its efforts to stifle inflation.

The annual inflation rate was 8.2% in September, just above the forecast of 8.1% and slightly down from 8.3% in August, data showed on Thursday. “Core” inflation – removing food and energy costs – jumped 0.6% from August to September; again, expectations were for a slightly lower increase.

If the Fed chooses to raise the key rate at its meeting in early November, closely tied annual percentage rates (APRs) on credit cards should also rise in tandem, just as the holiday season is in full swing. .

“It makes any already costly problem more costly,” said Ted Rossman, senior industry analyst at Bankrate.com. Higher APRs make it more expensive to maintain a balance from month to month.

When the Fed does raise rates, it can take days for new credit card offerings to reflect those rates, he said. It may take a month or two for credit card issuers to apply these higher rates to existing accounts.

On Wednesday, the average rate on new credit card offers was 18.67%, Rossman said. That number is approaching the record average of 19%, set in July 1991, he noted. “We’re probably going to surpass that in the next few weeks,” Rossman said.

At this time last year, the average APR on new offers was 16.16%, according to data from Bankrate.

During the second quarter, Americans had a cumulative balance of $890 billion on their credit cards, according to the Federal Reserve Bank of New York. The annualized increase in debt was the largest in more than 20 years and a potential sign of the consequences of inflation, the researchers said.

“It’s definitely a double whammy for people. Higher balances, higher rates. There’s a cumulative effect to all of this,” Rossman said.

Credit card balances

Credit card balances typically settle until the fourth quarter, then are paid off in the first quarter and slowly climb back up, Rossman said. Last year, the cumulative balance in the first quarter was $770 billion and rose to $860 billion in the fourth quarter, according to data from the New York Fed.

There are some early hints that shoppers may be cutting spending and increasing bargain hunting. Online holiday sales are expected to rise 2.5% to $209.7 billion this year, Adobe (ADBE) said. This is the slowest growth rate since 2012 and pales in comparison to the 8.6% increase in online holiday sales last year.

One feature is offering early October deals and discounts to entice customers, said Patrick Brown, vice president of growth and insight marketing at Adobe.

Retail sales last November and December hit a record $886.7 billion, according to the National Retail Federation. The trade association has yet to release its holiday shopping forecast for 2022, but there are early indications that people are hungry for bargains.

September’s retail sales numbers are another cloud on the horizon, experts say. “Even though people are employed and on paper seem reasonably comfortable, they don’t feel comfortable – and they’re very concerned about what’s next,” said practice chief executive Joel Rampoldt. retailer at AlixPartners, to ABC News.

Nearly six in ten shoppers said sales and promotions were more important to them than a year ago. When pollsters asked the same question last year, nearly half felt the same way.

Whatever happens next with credit card rates, there’s a chance many people won’t face a high credit card bill this holiday season until the festivities are over, says Michael Sullivan , personal finance consultant at Take Charge America, a nonprofit organization. consumer credit counseling and debt management organization.

“You worry about your Christmas debt in January. It’s my busy time of year,” said Sullivan, who has a few individual clients but is mostly focused on financial education and awareness.

Slowly rising credit card debt doesn’t seem to be on most people’s minds right now. Inflation always wins out, he said.

“Most of them feel overwhelmed by the costs,” he said.

Add that to lingering anxiety over a potential recession. It’s a worry shared by people like Jamie Dimon, CEO of JP Morgan Chase & Co., (JPM) who said he thinks a recession could hit America in the next six to nine months.

The specter of a “widespread crisis” where people lose their jobs in an economic downturn and can no longer afford to pay for necessities remains, he said.

If you make a list of all the credit crunches,” he told CNBC

“You can’t predict where they’re coming from, although I think you can predict that this time it will happen,” Dimon added.

-Andrew Keshner

 

(END) Dow Jones Newswire

10-14-22 1918 ET

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