Summer tax holidays could help Q3 spending

Although retail sales data for the second quarter 2023 are not yet complete, so far it looks like it could be solid enough to keep GDP from being negative when the advance estimate is released at 8:30 ET on Thursday, July 27. The GDP Nowcasts from the St. Louis and Atlanta Feds are currently both looking for a below-trend increase for the second quarter.

While it is far too early to make hard predictions about consumer spending in the July-September quarter, consumer spending in July and August could be strong. What is essentially a four-day weekend around the Independence Day observance (July 1-4) is expected to be a peak travel period with many on the road and in the air where they will need services like food and lodging. Then there’s the record heat and poor quality affecting many across large swathes of the US which will send consumers to stores looking for air conditioners, air purifiers, and fans. While there, retailers will be offering discounts and incentives for holiday and hot weather merchandise.

There’s also Amazon’s Prime Day sales on July 11-12 which will face stiff competition from other etailers and which could generate a wave of online shopping.

Finally, some states will be offering their annual back-to-school tax holidays. Most of these occur in late July and early August. Consumers – and not just parents and students – often take advantage of these to purchase school and office supplies, consumer electronics, and clothing. Retailers time their sales to coincide with the tax holidays in the hope of consumers making other purchases while in store.

Much will depend on how consumers view their disposable income. With abatement in price increases for nondiscretionary items like food, energy, and shelter, consumers may be feeling more positive about their discretionary spending, or at least willing to act where they see a bargain.