The 1.1 percent decline was sharper than economists had expected and came as sales of cars and home goods dropped.
Retail sales dropped in July, the Commerce Department reported Tuesday, a sign that consumer spending was hampered amid an uneven economic recovery from pandemic-induced restrictions.
The 1.1 percent decline in sales last month, led by a fall in spending on homes and cars, followed an increase in spending in June and was a bigger drop than economists had expected.
The increase in coronavirus cases caused by a surge in the Delta variant of the coronavirus has not affected spending yet, but shoppers could pull back if lockdowns are reinstated. Sales at restaurants and bars increased as consumers continued to dine outdoors. As fall approaches and the weather gets cooler, diners might be more reluctant to eat outside.
The decline in sales could signal a slowdown in the broader economic recovery. Consumer confidence tumbled more than 13 percent in early August from July, according to preliminary results from the University of Michigan’s consumer sentiment index.
Inflation is also weighing on the data, as consumers expect rising prices as the economy navigates the ups and downs of a shaky rebound, the Federal Reserve Bank of New York reported last week.
“Even though Covid-19 is playing its role in making consumers less reluctant to spend, a big factor is prices,” said Beth Ann Bovino, the U.S. chief economist at S&P Global.
Cars and auto parts
Sales of cars and auto parts were down 2 percent in July, as the prices of used and new cars continued to climb amid higher demand and lower supply of vehicles.
A global shortage of computer chips has slowed car and truck production in recent months, hurting automakers like Ford Motor, Daimler and BMW. The production of vehicles and parts rose 11.2 percent in July, the Federal Reserve reported Tuesday, but was still 3 percent below January’s levels. Excluding cars and car parts, retail sales fell 0.4 in July.
The semiconductor shortage continues to weigh down the automotive industry despite the rise in prices, which increased 5.4 percent last month from a year earlier, the Labor Department’s Consumer Price Index showed last week.
“Consumers hit their limit in terms of the prices of cars,” Ms. Bovino said.
Automakers have revised their production schedules lower, suggesting that some price pressures in the car industry could last into the fall, according to a research note from Goldman Sachs.
The average price for a new car in the United States hit a record high in July at $42,736, according to an analysis by the automotive research company Kelley Blue Book. Vehicle prices increased $402 in July from June.
Home furnishings
Sales of furniture, sporting goods and building materials declined as home prices continued to rise. The median price hit a record $363,300 in June, 23.4 percent higher than in the same month last year.
Home Depot reported on Tuesday that transactions fell to $481.7 million in the three months that ended Aug. 1, a 6 percent decrease from a year earlier.
“Since we’ve seen a slowdown in home sales, because of high prices, people are not buying homes or the furniture to furnish it,” Ms. Bovino said.
Also potentially weighing on spending, economists have said, is the end of pandemic-related unemployment benefits by about two dozen states.
E-commerce
July’s spending numbers also likely reflected dampened e-commerce sales, because Amazon’s Prime Day promotions, which can drive online spending in the summer, took place in June this year instead of July. Credit card spending data declined 1.3 percent in July from June, a drop that analysts at Bank of America attributed last week to a fall in online spending.
Sales at nonstore retailers, which include e-commerce businesses, fell 3 percent in July, the Commerce Department said. Sales are shifting month to month as the economy’s unsteady reopening continues.
“It is possible that if the Covid surge continues and consumers remain cautious, we will see a rotation back from people spending outside to spending online,” said Joseph Song, a senior U.S. economist at Bank of America.
Restaurants and bars
Despite concerns that consumers are rethinking their return to in-person shopping and dining as cities and states are forced to slow reopening plans, sales of clothing and clothing accessories, as well as spending at restaurants and bars, were up about 3 percent.
“People are still going out and spending at bars and restaurants because it’s summer and you can sit outside. You feel safer outside,” Ms. Bovino said. “The big question is what is going to happen in September, when we have to go back indoors.”
What’s next?
Some retailers shrugged off the July sales report. Walmart, which said on Tuesday that revenue rose in the three months that ended in July, offered optimistic guidance, saying it expected U.S. sales to increase 5 to 6 percent for the year.
Analysts at Bank of America saw a pullback in travel spending in the first week of August, according to credit and debit card data, which they attribute to the rise in coronavirus cases. They expect e-commerce sales to rise again. “Spending at nonstore retailers should bounce, but services spending will be weaker,” they said in a note.
Ms. Bovino had a similar outlook, saying she expected a slowdown in sales in the fall. “We’ve been seeing a transition away from large durable-good items to consumer-facing services, but that could stall because of the virus,” she said.
Retail Sales Fell in July, Highlighting a Rocky Economic Recovery - The New York Times
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