As inflation continues wreaking havoc on the U.S. economy, many consumers have pulled back on their spending. But there's one area that has remained relatively unchanged: Essential spending, like back-to-school shopping.
"In the current environment, we have persistent, unacceptably high inflation across virtually all categories but certainly, especially, in energy and food prices," Matthew Shay, president and CEO of the National Retail Federation (NRF), told Yahoo Finance Live (video above). "So we're seeing households prioritize things like — in this case, back-to-school [shopping] and treating that as an essential category — and therefore shifting some of their spending out of other discretionary categories to make sure they can take care of the things that are most in demand."
According to the latest data, U.S. consumer prices — reflected in the Consumer Price Index (CPI) — increased 9.1% year over year, the fastest annual pace since November 1981. That's forced many American households to pull back discretionary spending to focus on what they deem the most important areas.
“We're seeing in our research, our conversations with consumers, our surveys, that consumers and American households are doing really what they've been doing since we got into COVID more than two years ago, which is they're prioritizing essential spending, and they're changing their spending patterns and evolving their behavior to meet the environment," Shay said.
In this case, he added, that means consumers "taking care of their kids, their elementary, high school, and college students going back to school."
According to the NRF’s annual 2022 survey, the average household is expected to spend $864 on back-to-school spending this year, amounting to $36.9 billion overall — more than $2 billion higher than the 2021-22 school year. The top spending categories include electronics, clothing and accessories, and shoes.
A separate survey from Morning Consult found that 26% of shoppers are planning on spending more than $500 on back-to-school shopping this year versus just 7% of shoppers in 2021.
"Obviously, different families make different choices and prioritize different sorts of things," Shay said. "But back-to-class spending as a category, broadly speaking, is over $100 billion between back-to-school — which we define as elementary, high school — and back-to-college, which is about two-thirds of that spend."
The NRF survey also found that in order to cover the cost of back-to-school spending, 38% of families are pulling back in other areas, 18% of people are working overtime or picking up additional hours at work, 14% are taking out additional credit cards, and 12% are borrowing money or going into debt.
"I think we'll see people trade out of higher-priced goods into goods that are priced to fit their budgets," Shay said. "And we'll see households trade out of other discretionary items to get into the things that they determine to be essential for this particular back-to-school season, whatever that may be. I think that includes everything from apparel and footwear, and accessories to electronics [and] furniture really run the gamut."
Ethan is a writer for Yahoo Finance.