US retail sales flat in July as inflation takes its toll

WASHINGTON — The pace of sales at U.S. retailers was flat last month as stubbornly high inflation and rising interest rates forced many Americans to spend more cautiously.

Retail purchases were flat after rising 0.8% in June, the Commerce Department reported on Wednesday. Economists expected a slight increase.

Still, Wednesday’s report contained some positive signs: Excluding cars and auto parts, retail sales rose 0.4% in July.

Lower gas prices likely freed up money for people to spend elsewhere. Gasoline sales fell 1.8%, reflecting the drop in pump prices.

“As gas prices fell, consumers had more money in their pockets for other items like furniture and electronics,” said Jeffrey Roach, chief economist at LPL Financial.

Sales of building materials and garden equipment were flat, as were sales at electronics and appliance stores.

At the same time, consumers were wary of spending too much on non-essential items: Sales fell 0.5% at department stores and 0.6% at clothing stores.

Compared to 12 months ago, overall retail sales increased 10.3% in July.

U.S. consumers, whose spending accounts for nearly 70% of U.S. economic activity, have remained largely resilient even with year-on-year inflation near a four-decade high, growing economic uncertainties and rising costs of mortgages and loans. Still, overall spending has weakened and shifted increasingly toward things like groceries, and away from less necessary things like electronics, furniture and new clothes.

The government’s monthly report on retail sales covers about a third of all consumer purchases and does not include spending on most services, ranging from airfares and apartment rentals to movie tickets and doctor’s visits. . In recent months, Americans have shifted their purchases away from physical goods and more toward travel, hotel stays and air travel.

Inflation continues to represent a serious hardship for many families. Although gas prices have fallen from their heights, food, rent, used cars and other necessities have become much more expensive, beyond the wage increases that most workers have achieved.

Despite a still strong job market, the US economy contracted in the first half of 2022, raising fears of a potential recession. Growth has largely weakened as a result of the Federal Reserve’s aggressive interest rate hikes, which aim to cool the economy and control high inflation.

The impact of the Fed hikes has been felt especially in the real estate market. Sales of previously occupied homes have slowed for five straight months as higher loan rates and high sales prices have kept many potential buyers on the sidelines.

But the most important pillar of the economy, the labor market, has proven to be enduring. US employers added 528,000 jobs in July, and the unemployment rate hit 3.5%, matching the nearly half-century low reached just before the pandemic broke out in the spring of 2020.

Americans are still spending, but that money is going to different places as the pandemic subsides. Walmart, the nation’s largest retailer, posted better-than-expected quarterly sales and profit but said customers are favoring lower-priced grocery items.

And it’s gaining more customers who normally shop at Whole Foods. The company, long associated with low-income, price-conscious consumers, revealed that about 75% of its grocery sales last quarter were to households with incomes of at least $100,000.

He also noted that low-income customers were trading inside the store, for example swapping sliced ​​deli meats for hot dogs to save money.

On Wednesday, Target reported that its profit plummeted nearly 90% despite strong sales, in large part because it was forced to cut prices to liquidate huge inventories of items in high demand during the pandemic, such as furniture, appliances and Electronic products.

Signet Jewelers, which operates stores with names like Zales and Jared, lowered its full-year sales forecast last week as Americans cooled spending on luxuries and more on groceries.

“They’re being intentional,” said Jamie Singleton, president of Signet. She said customers are able to take home fewer items, but are spending more on the things they buy.

D’Innocenzio reported from New York.

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