That might seem in conflict with the Consumer Price Index‘s latest numbers in the U.S., which suggests that inflation may have peaked. The U.S. Bureau of Labor Statistics on Wednesday said the inflation in July was 8.5 percent, dipping from 9.1 percent for the period through from June. Retail apparel prices dipped 0.1 percent, seasonally adjusted, in July from the previous month.
The slight decline in last month’s inflation rate correlates with the amount of discounting currently at retail. That’s expected to continue through 2022 as retailers clear out excess goods that came in late—but that consumers no longer want—to right-size inventory. That means prices could fall on out-of-season apparel items, along with no longer needed grills and summer patio furniture.
Also, consumer gas prices are now under $4 nationwide for the first time in five months, according to the American Automobile Association on Thursday. That’s another indicator that helps lower inflation numbers. The slip in energy prices also contributed to 0.5 percent decline in July in wholesale prices, according to the report on the Producer Price Index on Thursday, although the year-over-year gain was 9.8 percent.
In addition, an Adobe Digital Price Index report on Wednesday indicated that online prices across 18 categories indicated that e-commerce has entered deflation for the first time in over two years. Electronics, apparel and toys drove down prices online. Co-developed by economists Austan Goolsbee and Pete Klenow, the index also showed that consumers spend $73.7 billion online, or $400 million less than the $74.1 billion spent in June, and lower than the $78.8 billion spent in May.
“Wavering consumer confidence and a pullback in spending, coupled with oversupply for some retailers, is driving prices down in major online categories like electronics and apparel,” Patrick Brown, Adobe’s vice president of growth marketing and insights, said. “It provides a bit of relief for consumers, as the cost of food continues to rise both online and in stores.”
But getting consumers to make those discretionary purchases could be a hard sell—even with the steep discounts—because their attention is focused on higher prices for much needed necessities. And prices could go back up once retail stabilizes inventory bloat.
A study from First Insight Report on the state of consumer spending found half of all consumers surveyed believe that high prices will remain for the next six to 18 months. Twenty percent said inflation will last between 18 months to two years, while another 20 percent said inflation will last over two years. Rising food prices were the biggest concern for 68 percent of respondents, with nearly half at 48 percent also concerned about food shortages. And since First Insight’s April survey, more respondents at 80 percent said they have less confidence to spend, versus 74 percent in April. Twenty-eight percent said they are saving less, with 18 percent tapping their savings accounts to pay for the increases costs of living expenses.
“As inflation remains at the highest levels seen in the U.S. since 1981, consumers continue to find different ways to afford things,” Greg Petro, First Insight’s CEO, said. Putting food on the table was deemed a priority by 59 percent of respondents, Petro said. Only 10 percent said spending on apparel, footwear and accessories was a priority. One bright spot since the April survey has been an “increase in spending on work-related apparel” as more update their back-to-office options.
Thirty-three percent said they’re seeing inflation affect prices for apparel, footwear and accessories, with 35 percent indicating they are cutting back on purchases in these three categories. Among the categories respondents said they were pulling back on their spending include casual wear and dress shoes at 29 percent each; seasonal apparel, 27 percent; activewear, 24 percent and athletic footwear, 23 percent. Only 24 percent in the latest study said they planned to cut back on handbags, versus 26 percent in April’s survey. Seasonal footwear also saw 24 percent of respondents planning to make fewer purchases, versus 25 percent in April. And best performing category is work wear, with just 14 percent planning a pullback versus 21 percent in April.
On the home front, 23 percent said they were cutting back on home decor and furniture, while only 8 percent the category was a priority in their spending. That compares with 10 percent noting that spending on apparel, footwear and accessories was a priority.
What are the priorities? Grocery purchases won the top priority spending spot at 59 percent, followed by gas at 44 percent and rent-mortgage at 29 percent. Higher gas prices also impacted spending at summer vacation spots such as amusement and theme parks. Forty-four percent said they planned to drive less overall. In addition, 31 percent indicated they are choosing private label goods over name brands to save money.
One area to keep tabs on is the labor front. For the week ended Aug. 6, first time jobless claims totaled 262,000, up 14,000 from the prior week’s revised tally. While the job market still is considered relatively tight, initial claims for unemployment benefits have been on the rise in recent weeks. That is an indicator that the jobs picture could be in the process of shifting.
The Conference Board’s Employment Trends Index fell in July to 117.63 from 118.71 in June.
“When the Index decreases, employment is likely to decrease as well, and vice versa. Turning points in the Index indicate that a turning point in the number of jobs is about to occur in the coming months,” The Conference Board said on Monday.
Frank Steemers, senior economist at The Conference Board, said that the Index has been on a downward trend since March 2022. He said the decline signals slower job gains and “would bring the labor market in line with the rest of the economy, where economic activity has already been slowing.”
Steemers expects the U.S. to “fall into a recession by yearend or early 2023.” He also said the Fed will continue to raise interest rates rapidly over the coming months, and as economic activity cools—essentially, consumer demand slows and spending pulls back—business that are facing labor shortages could see some reductions in pressure in recruitment and retention. For now, The Conference Board expects the unemployment rate—now at 3.5 percent for July 2022—to remain below 4.5 percent in 2023.
While that could push goods such as apparel into a deflationary cycle, other items such as food and necessities could still see price increases based on supply and demand.