Conflicting Retail Data Shows Differing Classes of Consumers

The latest retail data from Wal-Mart and the federal government points to a mixed and at times paradoxical picture. However many analysts are positing that the picture seems to tell of two different consumers and that the economic recovery has not reached down to the lower rungs of the economy.

Charles Holley (the chief operating officer) of Wal-Mart reported that, “During the first half of the year, we saw consumers in both mature and emerging markets curb their spending, and we believe these trends will persist through the remainder of the year." However the commerce department paints a different picture of retail spending and reported that, “…retail sales rose 0.2 percent in July.” Similarly the government’s “core spending index” which excludes cars and gasoline posted its largest gain in 7 months with a 0.5 percent increase.

The July retail data also showed that small purchases such as clothing and food (both for home and restaurant) are going up while big purchases such as appliances and furniture are going down.

Joe Feldman of Telsey Advisory Group resolves this seeming contradiction and explained that, “You're seeing a bit of a split economy where that lower income consumer has been under a lot of pressure but the higher end is doing OK. You're seeing borrowing is increasing actually for auto loans, for house loans. There is capacity to spend, but it's the high end that's getting that lending to spend. It's really the lower end where you're seeing a lot of pressure." Even worse for those on the lower end as Bureau of Labor Statistics reported that real weekly earnings fell by 0.5 percent in July.  

According to a Gallup Poll, 60000 dollars seemed to be the threshold between those who “feel good these days about the money they have to spend.” Similarly, the poll found that less than half of those making 48000 a year felt that "they have enough money to do what they need to do."

Finally it should be noted that traditional retailers such as Macy’s are losing business to E-commerce which allows for convenient comparison shopping. In a similar vein, Wal-Mart which has built a reputation for low priced goods is losing market share to Dollar Stores and stores with the same value proposition. It seems that whatever their difference, value is something most consumers understand.

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