Retail sales declined sharply in July, marking their largest monthly decline in more than one year. Data shows sales dropped by 0.6%, a drop that was last recorded in May of last year. The decline has been linked to the after-effects of massive spending during the World Cup, the end of spending linked to tax refunds, and exhaustion from heavy spending during Amazon Prime Day.
This sharp drop comes on the heels of a revised June sales increase of 0.2%, which was weaker than what had been predicted by economists. The retail sales decline is coming at a time when consumer confidence is declining, employment figures are weak, and there are growing concerns about slowing momentum in the growth of the American economy.
Online sales recorded a 2.2% drop from the previous month, while vehicle and auto parts sales fell by 1.8%. The total revenue of gas stations reduced month-on-month by 0.9% while appliance and electronics sales declined by 0.5%.
However, home furnishings, building supplies, furniture and clothing bucked the trend and registered gains. Sales by restaurants ticked upwards by 0.5%.
Commenting on the retail sales report, economists opined that the data warranted projections that forecast further reductions in spending by consumers. However, this data shouldn’t be viewed as a conclusive indicator that spending by households in America were declining drastically, they added.
They argue that wealthier households, as well as the support from a generally balanced labor market are factors that are likely to keep supporting economic growth.
This view is supported by a slight reduction in inflation, which fell month-on-month from the June figure of 3.5% to the July reading of 3.4%. Prior to the outbreak of the Iran war, inflation was at 2.4%, so there are still worries about inflation being a lot higher than is desired.
Pressure on household budgets is being increased by high fuel prices, with gasoline currently costing an average of $4.08 a gallon. This is 92 cents higher than it was one year prior.
To cope with this high cost of living, consumers are increasingly seeking products that are being sold on promotion and those sold at lower price levels. Many retailers are responding by offering special discounts on back-to-school items.
Analysts will be watching out for earnings reports from leading retailers like Target and Walmart that are due to be released this week. Their data will provide additional clarification on what consumers are spending on and provide indicators about what to expect the retail picture to look like in the months ahead.
For entities like Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) that are heavily invested in the retail sector, such data could provide insights into how the rest of the year is likely to go for the retail sector.
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