Retail sales slump in July

Retail sales slump in July

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2 hours ago - Economy

Retail sales slump in July

* Neil Irwin

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*Data: Census Bureau; Chart: Neil Irwin/Axios*

American consumers have powered the economy forward this year. In July, they took a breather.

**Why it matters:** While the underlying trend in consumer demand appears solid, retail sales hit an air pocket last month, suggesting a bumpier path ahead for overall growth.

* Combined with a weak jobs report last week and twosubdued inflation readings this week, it points to the Federal Reserve having room to be patient on potential interest rate increases this fall.

**Driving the news:** Retail sales fell 0.6% in July, the weakest performance in more than a year and well below the 0.1% gain analysts expected.

* Excluding gas stations and auto dealers, there was still a 0.3% decline in sales, meaning that the weakness was evident even apart from those volatile categories.
* Auto dealers' sales were down 2%, gasoline stations' sales fell 0.9%, and electronic and appliance store sales declined 0.5%.

**Of note:** Some one-off shifts pulled the numbers downward. Amazon held its Prime Day discounting event earlier this year than last, helping explain a 2.2% drop in online sales.

* Moreover, most World Cup games took place in June, so the associated spending would have the mechanical effect of pushing retail sales upward in early summer and creating a misleading decline in July.

**Yes, but:** The numbers were soft even accounting for those factors, giving some pause as to how robust consumer spending will be in the second half of the year.

* Growth in Personal Consumption Expenditures contributed a whopping 2.1 percentage points to overall GDP growth in the second quarter, even as other sectors combined to subtract from GDP.
* The retail sales control group that feeds directly into GDP calculations fell 0.4% in July, versus a 0.3% gain that analysts forecast, and previously reported gains for May and June were revised downward.

**What they're saying:** "The weaker July retail sales report shows that consumers took a breather last month after an ebullient burst of spending in the first half of the year," Nationwide chief economist Kathy Bostjancic wrote in a note.

* "The contraction in core retail control spending last month, following downward revisions to the prior two months, translates into a bit less momentum for real consumer spending starting Q3 than previously expected."

**Reality check:** The stock market is booming, gasoline prices are well off their recent highs, and the unemployment rate is low. There is no reason to expect broader consumer spending to experience a meaningful pullback.

* But the July retail numbers suggest there's no major acceleration taking place, either.

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