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Posted August 7, 2025 at 10:45 am
The back-to-school shopping season is upon us. August is here, the days are getting shorter, and the air is finally cooling off. The heat is on, however, within the retail space. There’s much trepidation regarding how household spending will perform over the months ahead, following the August 1 tariff-relief deadline.
So far, CPI data suggests only modest effects from higher import duties, but that could shift as Q3 unfolds. Some economists warn that the US effective tariff rate could rise from low single digits to nearly 15%, potentially pushing prices higher at the store level. Investors are worried; last week’s AAII Investor Sentiment Survey showed that 69% of respondents believe tariffs will slow the domestic economy in the second half of the year.1
The Fed is monitoring the situation, too. Last week, Chair Powell and nine other FOMC voting members chose to keep rates steady (two dissenters voted for a rate cut, but that’s a story for another day).2
A wait-and-see approach to monetary policy has been the mantra throughout 2025, although the Fed may resume its rate-cutting cycle in September. We’ll find out more at the August 21-23 Jackson Hole Economic Symposium put on by the St. Louis Federal Reserve.
By then, investors will have more clues on the consumer front. July Retail Sales prints on August 15, and the onslaught of second-quarter earnings reports from the country’s biggest consumer companies begins on Tuesday, August 19. That’s when Home Depot (HD) issues its numbers. Lowe’s (LOW), Target (TGT), and TJX Companies (TJX) report the next morning, with Walmart (WMT)’s Q2 results hitting the tape on Thursday, the 21st.
All eyes will be on the top- and bottom-line numbers, and all ears will be tuned into conference calls. But that’s still a few weeks away. In the here and now, hopes are pinned to a strong back-to-school shopping season.
Note: Dates denoted with an * are unconfirmed as of August 5, 2025.
Is there reason to be sanguine in advance of back-to-school and amid the tariff turmoil? Perhaps. Over the past few weeks, CEOs across industries have painted a decent picture of US consumer health. Bank leaders noted some household spending strength with solid credit trends.3 Delta’s (DAL) CEO gave an upbeat outlook, while Hershey (HSY) highlighted high seasonal demand.4 Visa (V), offering a broader view of spending trends, voiced stability and resilience in its customer base.5
According to the National Retail Federation (NRF), two-thirds of families had begun spending for the fall semester by July 15.6 The early start is a welcome sign for apprehensive retailers. In fact, it was the largest share of US consumers shopping that early since the survey began in 2018, per the NRF.
Perhaps it was round two of front-loading ahead of tariffs, and July could also be a strong month for retail activity due to the four-day Amazon Prime Day event. Walmart and Target put on promotions of their own to get the back-to-school spending party started, as well.
Digging into the NRF’s findings, it’s not all rosy for consumer companies. Families with grade-school children intend to spend about 2% less than last year on clothing, shoes, school supplies, and electronics. Interestingly, an increase in apparel spending could drive a slight annual rise in total expenditures. Toss in back-to-college, and the total amount spent is forecast to reach a record $49.9 billion this season.
Let’s zoom out. Describing “the consumer” as a monolith is the wrong way to do it in today’s economy. There are clearly haves and have-lesses, in what some dub the K-shaped economic recovery, in which higher-income households are powering much of the spending, while lower-income families remain cautious.
Bank of America Global Research points out that the US has a higher proportion of low-income consumers than almost every other major economy, but that group’s share of total consumption is very low. For investors, the low-income spending cohort is responsible for just two percentage points7 of S&P 500 earnings.
The point? While aggregate back-to-school spending matters, the market may be more concerned about how much high-wage households consume.
That’s where upcoming retail earnings reports come into play. Listen for updates on trends in big-ticket spending. As callous as it might sound, if the rich are feeling well, and doling out for trendy outfits, high-performance electronics, and extravagant dorm-room adornments for their kids, that would likely move the needle more than aggregate expenditure on elementary-school basics.
NRF data reflect this divide. “This (spending) increase can largely be attributed to higher income households, while lower income households are pulling back across categories because of economic uncertainty,” Prosper Executive Vice President of Strategy Phil Rist said.
Another nuance to back-to-school spending is that it’s one of those things that parents are reluctant to skimp on. Everyone wants the best for their kids, and paying up for a decent computer and trendy clothes is almost a non-negotiable for some. As a result, discretionary spending in other areas—like restaurants or entertainment—may be the trade-off. The upcoming Retail Sales report will provide a more detailed look at where consumers are prioritizing their dollars.
Despite concerns, there are bright spots. The July Consumer Confidence Index published by The Conference Board last week revealed a modest uptick in the vibes.8 Then last Wednesday, the Q2 GDP report featured a sequential rise in real consumer spending.9 The counter there is an incline in June’s core goods PCE inflation.10
Maybe the best tack is simply to follow that age-old Wall Street wisdom: Never underestimate the American consumer.
Pumpkin spice coffee has been spotted at grocery stores, and NFL training camps are underway. Ah, the timeless traditions of late summer. The back-to-school season is in full force, and upcoming macro reading and earnings reports will offer fresh color on the health of household spending. Consumer-related companies have put out mixed takes, making the next few weeks all the more crucial for investors.
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Originally Posted on August 6, 2025 – Back-to-School Spending Season in Full Swing, Key Events Ahead
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