Economists had expected a small increase in retail sales, but July brought surprisingly sour news
By Matt Grossman
Sales at U.S. retailers slid in July, the latest in a string of weaker reports prompting a rethink about an economy that had looked to be only accelerating this spring.
Retail sales dropped by 0.6% last month, the Commerce Department reported Friday, falling short of the 0.1% increase that economists had expected. The numbers landed a week after the monthly jobs report showed the economy lost 23,000 jobs in July. Earlier this week, moderate inflation figures also undercut concerns that the economy is overheating.
July's sales setback extended beyond gasoline stations, where lower prices had been forecast to keep sales totals in check. Sales in the "control group" categories of everyday products that economists track closely fell by 0.4%, the first such decline this year.
A separate downbeat report Friday morning from the University of Michigan's preliminary monthly survey showed consumer sentiment has reversed recent gains so far this month. Shoppers reported that persistent price increases and the Iran war have dimmed their view of the economy.
The retail numbers look somewhat less concerning under the surface. Sales at nonstore retailers -- which mostly represent online shopping -- fell by 2.2%, pulling down the overall totals. Many analysts attribute that drop to Amazon.com's Prime Day sales event, which the company held in June this year instead of July. In June, nonstore retailers logged a 7.7% sales increase, which likely showed the flood of Amazon orders during Prime Day.
Other one-off factors that don't reflect economic weakness, like hot weather and the end of the World Cup, might have also pulled down sales last month. But the numbers stand in contrast to a run of strong numbers the economy recorded this spring, a turn that has shifted some economists' assessment of its momentum.
The retail-sales numbers "leave the consumer looking a little less healthy," Stephen Brown, an economist at Capital Economics, wrote in a note to clients. Taking the Prime Day timing into account, the underlying pace of shopping was probably close to flat last month, he estimated, which, if it continues, could hold back consumers' contribution to economic growth in the July-through-September quarter.
Any further evidence of a weaker consumer -- the heart of the U.S. economy -- could factor into the thinking of Federal Reserve policymakers, who are weighing whether elevated inflation warrants raising interest rates in the months ahead. The 12-month inflation rate is still high at 3.3%, but prices declined in June and were close to flat in July.
The debate at the Fed hinges on whether persistent price increases mostly reflect a string of one-time effects from tariffs and the Iran conflict -- or whether they are being driven by deeper economic trends, like a lasting surge in AI investment and consumers whose strong appetite to spend leaves them willing to pay rising prices.
Sustained evidence of easing consumer demand might suggest that price increases could cool off further without the Fed's intervention.