The numbers: Americans cut spending at retail stores in July for the second time in three months, largely reflecting an Amazon Prime Day hangover and a limited selection of new cars.
The fast-spreading delta strain of the coronavirus may also have partly dampened spending last month, but it’s still too early to gauge the impact. The amount of money spent at bars and restaurants increased at the slowest pace in five months.
Retail sales sank 1.1% last month, the government said Tuesday. Economists polled by The Wall Street Journal forecast a 0.3% decline.
Retail sales are still up 16% in the past year and exceed pre-pandemic levels, but the increase in receipts has slowed over the past several months.
What’s more, some of the sales gain reflects rising inflation and higher prices.
Big picture: Retail sales were bound to slow after government stimulus payments faded away. Americans also took advantage of fewer Covid restrictions to go to a ball game or take long delayed trips away from home rather than spend money on goods. Retail sales, including at restaurants, only account for one-third of overall consumer spending. The rest is spent on services such as education and travel.
The good news is, consumer spending is still quite strong.
“The bigger-than-expected fall in retail sales is almost certainly due to the continued and accelerating shift from goods spending to services spending, as the services economy reopens,” said corporate economist Robert Frick of Navy Federal Credit Union.
What’s less certain is whether the delta variant of the coronavirus forces Americans to cut back on services just like they did during most of the pandemic. Early evidence suggests just a minuscule pullback so far, but if coronavirus cases keep rising, the damage could spread and harm the U.S. economy in the third quarter.
Key details: The chief source of lower retail sales last month was a decline in car-buying. Sales at auto dealers tumbled 3.9% to mark the third decline in a row.
Automakers can’t produce enough new vehicles to sate the appetite of buyers because of a global shortage of computer chips. Semiconductors are now a critical component in modern vehicles.
Auto purchases account for about one-fifth of all retail sales. Excluding autos, retail sales fell a smaller 0.4%.
Still, sales declined in most major categories. Americans spent less on building materials, do-it-yourself projects, furniture, clothing, groceries and hobby items.
Sales also fell sharply at internet retailers, but the decline likely reflected consumers taking a breather after Amazon
Prime Day in June. Sales usually slow the following month.
The only retailers to post big gains were gas stations and restaurants.
Consumers are driving more and also paying much higher prices for gasoline compared to a year ago.
Restaurant sales rose 1.7% in July, but it was the smallest gain in five months.
Millions of people flocked to restaurants after they were vaccinated and coronavirus cases fell in the spring and early summer, but the delta-driven resurgence might be forcing customers to think twice.
Some governments or restaurants are also requiring proof of vaccination, a rule that could turn some customers off.
What they are saying? “These results were worse than expected, and they will add to concerns about a faltering economic rebound,” said chief economist Carl Weinberg of High Frequency Economics.