Delta warning sign: Retail sales dipped more than expected in July

By Anneken Tappe, CNN Business

Americans shopped less than expected last month as the Delta variant swept across the country, fueling concerns that the pandemic might once again weigh on consumer spending and the economic recovery.

Sales declined by 1.1% in July adjusted for seasonal swings, the Census Bureau showed Tuesday. It was a steeper decline than the 0.3% economists surveyed by Refinitiv had predicted. It was also the second decline in three months, suggesting that the pent-up demand that fueled the recovery in the winter and spring spring may have evened out.

Spending at restaurants and bars continued to grow in July, albeit at a slightly more moderate pace than in the previous month.

Meanwhile, other economic data is hinting that the Delta variant might be giving consumers pause. Last week, preliminary data from the University of Michigan showed consumer sentiment plunged in August, dropping to the lowest level since December 2011.

2020 comparisons

Even with the renewed worries about the pandemic and the stimulus check sugar rush wearing off, retail sales are still far above last year’s level, up nearly 16% from July 2020. That’s because the economy has recovered substantially from a year ago.

Gus Faucher, chief economist at PNC, said “the outlook consumer spending remains positive.” But he believes “spending growth will shift from goods to services over the next couple of years, limiting growth in most categories of retail sales.”

Meanwhile, American households lucky enough to keep their jobs during the pandemic shored up their savings over the past year. This nest egg will help fuel US consumer spending in years to come, Faucher added.

In other retail news, Walmart raised its revenue forecast for the year despite the Delta variant threat in Tuesday’s earnings announcement. The company’s executives also said more customers were returning to stores.

In July, sales at online retailers declined 3.1% — not least because of an evening-out effect from Amazon Prime Day in June — exceeded only by car and car part dealers, which dropped 3.9%.

Excluding cars and car parts, overall retail sales declined at a slower pace, falling 0.4%, but still underperformed expectations.

The auto market has turned into a microcosm of the broader pandemic economy over the past year. A rush for vehicles as Americans sought mobility when the economy first started to reopen was exacerbated by chip shortages and plant closures weighing on new car availability.

–CNN Business’ Nathaniel Meyersohn contributed to this report.

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