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Retail sales fall in July, but for good reason: cheaper gas

Retail sales fall in July, but for good reason: cheaper gas

The numbers: Sales at US retailers fell in July, mainly due to cheaper gas and fewer purchases of new cars and trucks. At other companies, sales were stronger, a good sign for the economy that could ease concerns about the recession.

Retail sales make up a large part of consumer spending and provide clues about the strength of the US economy. Sales have slowed this year, but not enough to suggest the economy is in trouble. The July report could even ease concerns about the recession.

Excluding cars and gas stations, sales rose a solid 0.7% in July. Internet sales were up 2.7%, helped by Amazon Prime Day mid-month.

inflation did not play as big a role as in previous months. The cost of living remained unchanged in July for the first time since May 2020, just two months after the start of the coronavirus pandemic.

Economists polled by The Wall Street Journal had forecast a 0.1% increase in sales for July.

big picture: Retailers struggle to maintain momentum after a major recovery in 2021. High inflation has made shoppers more selective and consumers have shifted spending from goods to services such as travel and dining out.

in some cases, retailers have also been bogged down with excess inventory that they had to liquidate through discounts. While hurting profits, consumers can still get good deals on certain items, such as clothing and appliances, despite the worst inflation in nearly 41 years.

However, make no mistake. High inflation harms the economy. The Federal Reserve is moving quickly to raise the cost of borrowing to cool an overheated economy, raising the likelihood of a recession.

Key details: Auto and parts sales fell 1.6% last month, government figures showed.

Sales at gas stations also fell by 1.8% last month, largely due to falling prices. National gas costs fell nearly 11% to an average of $4.44 per gallon.

Prices continued to fall to $4 a gallon in August in another lull for U.S. households, leaving them with a little more money to spend on other goods and services. It is good for consumers and the economy if they have to spend less on fuel.

If gas stations and car dealerships are pushed aside, retail sales rose a solid 0.7% last month. That gives a better picture of the retail sales trends.

Department stores were one of the few segments with a significant drop in sales.

One category economists are keeping a close eye on is bars and restaurants, the only service category in the retail report. Restaurant sales rose just 0.1% last month, though they are up 11.6% over the past year.

Restaurant sales tend to rise when the economy is healthy and Americans feel safe in their jobs. Sales usually level off or decline in more difficult times.

The originally reported 1% sales increase in June was revised to show a gain of 0.8%.

Looking forward: The July retail sales report confirms “what we already know: The US economy is not currently in a recession,” said Cliff Hodge, chief investment officer at Cornerstone Wealth in Charlotte. NC

“While total retail sales were flat in July, the details were much more encouraging,” said Michael Pearce, a senior US economist at Capital Economics.

Market reaction: The Dow Jones Industrial Average DJIA,
-0.49%
and S&P 500 SPX,
-0.62%
were set to open lower in Wednesday trading.