US consumers trim back-to-school budgets as inflation bites

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US consumers are planning double-digit cuts to their budgets for back-to-school supplies in the latest sign that inflation is weighing on discretionary spending in the world’s largest economy.

The average family will spend 10 per cent less on each student this summer than in 2022, Deloitte forecast on Wednesday, setting up a test of a strained retail sector’s ability to weather a more wary consumer mood.

Shoppers are set to spend $31.2bn, or $597 a child on average, in the period when parents traditionally stock up on children’s clothing and stationery, Deloitte estimated after surveying 1,212 parents.

That is a fraction of the sum likely to be spent in the holiday season that runs from November to January, but back-to-school sales have historically served as a pointer to what retailers can expect in that peak season.

Even as US inflation ebbs from its recent highs, households are grappling with the challenge of prices rising faster than their incomes. Three in 10 of the parents Deloitte surveyed reported being in a worse financial situation than last year, and half said they expected the economy to weaken in the next six months.

The cost of school supplies has surged 23.7 per cent over the past two years, according to the US Bureau of Labor Statistics. Consumers appear to have noticed, with 80 per cent of those surveyed by the National Retail Federation saying they expected higher prices during this year’s back-to-school season.

American have become more selective in their shopping since the easing of Covid-19 restrictions unleashed a surge of spending on experiences denied to them earlier in the pandemic.

“Consumers will likely prioritise where they spend money as they look to replenish their savings accounts and spend on experiences, such as summer vacations, over goods,” said Nick Handrinos, vice chair of Deloitte.

Price-sensitive consumers are “hungry for deals” this back-to-school season, Deloitte said, shopping earlier and going online especially for tech products. Online prices have been falling for 10 months, according to Adobe, and analysts expect strong growth in purchases during this year’s Prime Day promotional event from Amazon.

Some large retailers are also emphasising bargains, with Target advertising a 20 per cent discount on college supplies and Walmart offering a basket of school supplies at the same prices as last year, including notebooks for 50 cents.

Although US consumer spending has been more resilient than many economists expected, with retail sales rising 0.3 per cent in May, some recent earnings reports have indicated that an inflation-driven slowdown in discretionary spending is hitting retailers and their suppliers.

Nike, for example, said its North America sales rose just 5 per cent in the fiscal fourth quarter, down from much faster growth in the previous two quarters. Levi Strauss warned of weakness in wholesale and flagged plans to lower prices on some items.

Moody’s Investors Service warned this week that the sector could see more defaults as retailers struggle with the rising cost of products, freight and interest payments, as well as reduced consumer spending and ongoing supply chain challenges.

A dozen US retailers have already filed for bankruptcy this year, including Bed Bath & Beyond and Christmas Tree Shops.