Weekly Economic & Business Outlook

Consumers to the Rescue: Making Sense of the Latest Retail Sales Numbers

Despite tightening economic conditions, consumption remains resilient. According to recent data from the U.S. Census Bureau, retail sales surprised to the upside, rising by 1% against expectations of 0.3%. This spike rejects the notion of a struggling consumer against the pressures of inflation and interest rates, and further affirms the probability of a soft landing. Consumers have come to the rescue of economic growth before—last quarter’s gross domestic product spike was supported by an expansion in private inventories as businesses sought to keep up with demand.

According to the June numbers, retail sales were largely driven by auto sales as well as other durable goods, which suggests that consumers are still purchasing big-ticket items. This could be due to expectations of better economic conditions in the future. This GDP uptick also complements recent numbers from the Consumer Confidence Index, which saw overall sentiment accelerate despite mixed results from various consumer segments. Additionally, most consumers continue to hold a negative view of the current economic environment and a positive view of the future.

Retail sales represent 40% of consumer consumption and 70% GDP, which means these latest numbers could influence revisions to GDP. Consumers will need to remain resilient for the economy to successfully navigate this last mile of the Fed’s tightening cycle, even though increased volatility within the labor market creates additional hurdles to sustained spending. However, July’s numbers are another welcome sign for the Fed as it prepares to begin loosening interest rates and focusing on the employment side of its dual mandate.

Employee Confidence Sees Summer Plateau

The Glassdoor Employee Confidence Index, which measures worker confidence in their jobs as well as their job outlook, inched up to 48.1% in July from 47.8% in June. The index launched in January 2016 with a reading of 47.2% and peaked at 55.7% in March 2022 before descending to a low of 45.4% in February 2024. It made gains to start the second quarter this year but was flat in June and July.  

By industry, workers in the legal field had the highest employee confidence at their firms (62.1%), with human resources and staffing coming in second (60.4%). The latter was flat, advancing just 0.6% from June and easing 0.2% from July 2023. Legal workers’ confidence grew the most from the prior year (+6.9%) while hotels and travel accommodation saw the largest decline year-to-year (-8.4%).

This period of subdued worker confidence comes as the labor market seems to be cooling, with job gains moderating and the unemployment rate rising. A separate survey from Express Employment Professionals reflects this labor market uncertainty, finding that job seekers are growing increasingly concerned about being laid off from their job before finding a new one. Three in 10 job seekers expressed this sentiment in spring 2024 (31%) compared to 28% in fall 2023 and 24% in spring 2023.

Though the labor market in 2021 and 2022 strongly favored job seekers, it has cooled somewhat in the period since. Economic uncertainty is not lost on workers whose employee confidence has eased in 2024, and it may be more of the same for the next few months until the impact of September’s anticipated rate cuts can be felt.