July US inflation figures moderated to 8.5% from a very high 9.1% in the prior month, however retail analyst Neil Saunders suggests there are signs that non-essential categories such as apparel are 'fraying around the edges'.

US apparel retailers saw sales decline by -0.1% month-on-month in July, according to data released by the US Census Bureau, after rising the prior two months

Overall retail sales in July remained the same on a seasonally adjusted basis after rising 1.3% in June. Over the last 12 months the all items index increased 8.5% before the seasonal adjustment, a smaller figure than the 9.1% increase for the period ending June,

The US Census Bureau suggests the reason for the all items index being unchanged over the month was because the gasoline index fell 7.7% in July and this offset increases in the food and shelter indexes. Meanwhile, the energy index fell 4.6% over the month as the indexes for gasoline and natural gas declined, but the index for electricity increased and the food index continued to rise (1.1% over the month) with the food at home index rising 1.3%.

GlobalData managing director and retail analyst Neil Saunders believes the overall result is positive, however he adds: “The not so good news is that 8.5% is still eyewatering and continues to impact many households, especially those towards the bottom of the income spectrum.”

He doesn’t believe there’s an imminent collapse of spending, however he says: “Broadly, the consumer economy remains robust, but there are signs that it is fraying around the edges – especially in non-essential categories.”

Apparel, which is classed as a non-essential category was among the indexes that declined in July, along with airline fares, used cars and trucks and communication.

The index for all items less food and energy rose 0.3% in July, which is a smaller increase than in April, May or June. The indexes for shelter, medical care, motor vehicle insurance, household furnishings and operations, new vehicles and recreation were among those that increased over the month.

The all items less food and energy index rose 5.9% over the last 12 months and the energy index increased 32.9% for the 12 months ending July, which is a smaller increase than the 41.6% increase for the period ending June. The food index increased 10.9% over the last year, the largest 12-month increase since the period ending May 1979.

Saunders says there’s a lot of mixed signals that do not relay a positive message to consumers. Indeed, he says: “The sustained nature of this current bout of high inflation continues to impact consumer habits”.

He also points out GlobalData’s latest consumer survey data shows that almost all behaviours continue to move in an unfavourable direction.

“More people are trimming the amount they buy, trading down to cheaper options, or shopping around more to find bargains,” he explains.

The findings from GlobalData’s July US consumer panel that featured a representative sample of 2,755 Americans revealed:

• 60.4% buying fewer non-food products (up from 59.2% in the month prior)

• 51.7% driving less to save on gasoline (down from 52.8% in the month prior)

• 49.6% hunting more for bargains (up from 45.7% in the month prior)

• 42.5% trading down to cheaper brands in food and grocery (up 40.1%)

• 39.9% shopping around more/checking more places to find better prices (up from 38.6% in the month prior)

Saunders believes retailers and businesses are now seeing these signals in their own trading numbers.

“Non-food volumes have fallen, and consumer firms are having to work a lot harder to stimulate demand via discounting or promotions. This will be modestly helpful to inflation in some areas. Online prices, for example, are already falling, and apparel prices fell in July compared to June.”

He points out the problem is that while businesses are discounting, their own costs continue to rise. This is leading to a profit crunch which is already transpiring in the latest round of trading updates. The danger here is that this trend could morph into a slowdown in investment, job creation and expenditure by firms which may further chill the economy.

By Just Style