Retail sales fell by a lot more than experts expected in July. However, the shopping trends underlying the data don’t paint a picture of nervous consumers pulling back amid renewed COVID concerns.
Why it matters: The recent spike in COVID cases amid the spread of the Delta variant has taken a toll on consumer sentiment. Should that drop in sentiment translate into a significant downturn in actual spending, the U.S. economic recovery could be thrown off track.
By the numbers: Retail sales in July declined by 1.1% from June levels, according to a Tuesday Census report. That was much worse than the 0.3% decline expected.
- Leading the decline was a 3.9% drop in motor vehicle and parts dealers sales. The auto industry, however, is working through well-known supply chain issues.
- Yet excluding autos, retail sales still unexpectedly fell by 0.4%, which was also worse than the 0.2% gain expected by economists.
Between the lines: Online retailer sales fell by 3.1% during the month. The category accounts for about 14% of total retail sales.
- Multiple economists Axios follows, however, noted this reflected Amazon’s Prime Day, which occurred in June. The event, which even had Amazon’s online competitors offering aggressive deals, had the effect of pulling demand forward, depressing sales in the subsequent month.
- "The miss was largely in online retailing," Renaissance Macro economist Neil Dutta said of July’s retail sales report.
Zoom out: If there’s one bigger picture theme that explains the report, it’s that consumers are spending more on services and less on goods, reversing behavior adopted during the lockdowns.
- "The largest declines were in Covid-advantaged categories," Morgan Stanley chief U.S. economist Ellen Zentner said, pointing to sporting goods, books, building materials and furniture.
- Spending at restaurants and bars jumped 1.7%, which conflicts with the idea that the Delta variant wave has caused consumers to spend less.
Yes, but: "Data on mobility is starting to show a pull back, especially in hot spots in the South," GrantThornton chief economist Diane Swonk said.
The bottom line: July economic data doesn’t conclusively signal that the spike in COVID cases is leading to a retrenchment in spending. However, it also doesn’t suggest the economy is in the clear.
- "Fear acts as its own deterrent on congregating," Swonk said. "Spread of the Delta variant and vaccine hesitancy have begun to collide. We are in for a rockier second half of the year."
