WMT, TGT, HD to report Q2 results

High food prices. Low unemployment. And eye-popping spending on concert tickets and European trips.

Retailers are chasing shoppers as they navigate contradictory dynamics like cooling inflation, rising interest rates and pandemic-induced jolts to the way people live, work and shop.

That has made it tricky to predict consumer spending.

“We’ve been dealing with massive imbalances in the economy and big shifts in spending patterns, investment patterns, supply disruptions, all of that stuff. And then the reversal of all of those shocks,” said Aditya Bhave, a senior U.S. economist for Bank of America. “So that’s been the big challenge.”

The swirl of confusing trends tees up a closely watched retail earnings season that could offer more clarity about consumers and the economy. Home Depot, Target and Walmart will kick it off this week, followed by other major retailers like Lowe’s, Best Buy and Macy’s.

The reports come as opinions about the economy have grown more optimistic. Economists at Bank of America and JPMorgan recently scrapped calls for a recession this year. Wall Street investors have rallied behind calls for a “soft landing,” or a successful effort by the Federal Reserve to slow down the economy and higher prices by raising rates — but without tipping the country into a sharp economic downturn.

Yet concerns linger. Credit Suisse’s global equity strategist Andrew Garthwaite predicted in a note to clients last week that the U.S. economy will head into a recession next year and drag down stocks.

As the biggest U.S. retailers gear up to report earnings, here are four reasons why consumer spending and those companies’ sales have become harder to predict:

The consumer price index, which tracks the prices consumers pay for a key basket of goods and services, rose 3.2% in July compared with a year ago, the Bureau of Labor Statistics reported Thursday. That’s a much more modest increase than the 40-year inflation highs that consumers dealt with about a year ago.

Some brands have even spoken about cutting prices. For example, denim maker Levi Strauss‘ CEO Chip Bergh said in a CNBC interview last month that the company will reduce the cost of about a half dozen items, including 502 and 512 jeans, by $10. More price-sensitive shoppers typically buy those items, he said.

Yet Americans are still spending more on just about everything, even as wages start to rise at a higher rate than prices. Those more expensive items include necessities like groceries, housing and cars. For example, prices for food at home have shot up 25% compared to before the pandemic in January 2019, according to an analysis of U.S. Bureau of Labor data.

Even Levi’s reflects that. The jeans that it plans to…