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Understanding Back-to-School Spending Trends

September, or August in some regions, is often seen as one of the busiest spending months of the year. According to the National Retail Federation (NRF), back-to-school spending is projected to reach a record $130 billion in 2023. Many states even offer sales tax holidays to encourage local spending during this period.

While back-to-school shopping is significant, it is often second only to end-of-year holiday spending. To verify this, we reviewed national sales and Experian data to see if there’s a noticeable impact on consumer spending as summer transitions to autumn.

August and September: Busy Bees or Dog Days?

Examining the past decade of retail sales data from the U.S. Census Bureau, August and September don’t appear to be particularly strong months for retailers. The average change from July to August since 2014 has been a modest 1.7% increase, which is lower than the last three months of the year. September shows a clear decline, with spending 6.2% lower than in August.

One reason for this decline is that September has one fewer day than August, reducing shopping opportunities. Additionally, while Labor Day offers sales, it isn’t typically one of the busiest shopping days of the year.

Store Card, Credit Card Balances Don’t Show Back-to-School Spending Upticks

Recent credit card balance data from Experian indicates that August and September don’t see substantial increases in balances. Credit card balances increased by an average of 0.9% in August, and since 2019, September balances have only increased by an average of 0.1% from August. This data suggests that consumers spend the early months of the year paying down large balances from December, with modest spending changes for the rest of the year, including back-to-school season.

Looking further back, Federal Reserve data on revolving credit shows similar trends. August spending increases by 0.7% on average, while September spending shows a modest decline of 0.2% in revolving credit balances since 2008.

Average Credit Card Balances in September 2023 and Beyond

This year is expected to be different, not only for September but also for the upcoming holiday season. Several factors will challenge both consumers and retailers:

• Tightened credit: Lenders are becoming more selective about extending credit, which may lead to reduced consumer spending.
• Higher interest rates and APRs: Higher annual percentage rates (APRs) have already increased credit card balances. Going forward, higher APRs, currently averaging over 22%, may cause consumers to curb their spending or shift to alternative payment plans like buy now, pay later.
• Student loan payments: Resuming in October, these payments may significantly reduce discretionary income that could otherwise be used for back-to-school and holiday spending.

If credit card balances increase in September 2023, it will likely be due to accrued interest rather than increased spending. Overall, back-to-school spending may be overhyped, with larger economic forces playing a more significant role in the coming months.

For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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