U.S. retail sales fell in July by more than forecast, consistent with a steady shift in spending toward services and indicating consumers may be growing more price conscious as inflation picks up.
The value of overall retail purchases dropped 1.1 percent last month following an upwardly revised 0.7 percent increase in June, Commerce Department figures showed Tuesday. The median estimate in a Bloomberg survey of economists called for a 0.3 percent decrease. Excluding autos, sales decreased 0.4 percent in July.
The data suggest that consumers are beginning to curb spending on merchandise in favor of services now that many pandemic-related restrictions have been lifted. At the same time, the emergence of the delta variant poses a risk to economic activity and could curb demand for services like travel and entertainment.
Higher prices for things like groceries, meals out, personal care and apparel risk limiting discretionary spending in the coming months. A report last week from the University of Michigan showed buying conditions deteriorated to the lowest since April of last year as inflation remained elevated. The retail sales data are not adjusted for price changes.
Economists forecast consumer spending to grow at an annualized 4.5 percent pace in the current period, significantly slower than the pace estimated a month ago and a sharp deceleration from the sizzling 11.8 percent rate seen in the second quarter.
This week includes earnings reports from many retailers, including Target and Macy’s. Earlier Tuesday, Walmart posted stronger-than-expected comparable sales and the retail giant boosted its full-year outlook.
Results from Home Depot, however, showed weaker-than-expected results that signal a cooling in the home-improvement boom.
According to the Commerce Department’s report, 8 of 13 retail categories registered decreases in July sales, led by auto dealers and nonstore retailers.
Sales at restaurants, the only services-spending category in the retail report, rose 1.7 percent. Restaurant spending could soften in the coming months, depending on the path of the delta variant. Total card spending from Bank of America Corp., decelerated at the end of July, while OpenTable restaurant bookings have moderated.
Motor vehicle and parts dealer sales slumped 3.9 percent in July after a 2.2 percent slide a month earlier, likely in response to limited inventory and higher prices as automakers face supply chain constraints.
Sales at non-store retailers, which include e-commerce, fell 3.1 percent in July, a sharp slowdown from the prior month likely reflecting Amazon.com Inc.’s move of Prime Day — an annual sales event for online shoppers — to June.
There were also declines in sales at apparel retailers, building-supply outlets and furniture stores.
So-called control group sales, which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations, dropped 1 percent in July.
— Bloomberg News