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US retail sales were flat in July as inflation takes a toll

By PAUL WISEMAN and ANNE D’INNOCENZIO
AP Business Writers

WASHINGTON (AP) — The pace of sales at U.S. retailers was unchanged last month as persistently high inflation and rising interest rates forced many households to spend more cautiously.

Retail purchases were flat after having risen 0.8% in June, the Commerce Department reported Wednesday. Economists had expected a slight increase in July retail sales.

Still, Wednesday’s report included some positive signs: Excluding autos and auto parts, retail sales rose 0.4% in July. And purchases of building supplies and garden equipment held up, as did sales at electronics and appliance stores.

Lower gas prices likely allowed some shoppers to increase their purchases of other items. Gasoline sales plunged 1.8%, reflecting the drop in pump prices.

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

At the same time, consumers remained wary of spending much on non-essentials: Sales were down 0.5% at department stores and 0.6% at clothing stores.

Compared with 12 months ago, overall retail sales were up 10.3% in July.

America’s consumers, whose spending accounts for nearly 70% of economic activity, have remained mostly resilient even with year-over-year inflation near a four-decade high, economic uncertainties rising and mortgage and other borrowing rates surging. Still, their overall spending has weakened, and it has shifted increasingly toward necessities like groceries and away from discretionary items like home goods, casual clothes and electronics.

The government’s monthly report on retail sales covers about a third of all consumer purchases and doesn’t include spending on most services, ranging from plane fares and apartment rents to movie tickets and doctor visits. In recent months, Americans have been shifting their purchases away from physical goods and more toward services, like travel, hotel stays and plane fares.

Inflation continues to pose a severe hardship for many families. Though gasoline prices have fallen from their heights, food, rent, used cars and other necessities have become far more expensive, beyond whatever wage increases most workers have received.

Despite a still-robust job market, the U.S. economy shrank in the first half of 2022, raising fears of a potential recession. Growth has been weakening largely as a consequence of the Federal Reserve’s aggressive interest rate hikes, which are intended to cool the economy and tame high inflation.

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

But the most important pillar of the economy — the job market — has proved durable. America’s employers added a hefty 528,000 jobs in July, and the unemployment rate reached 3.5%, matching a near-half-century low reached just before the pandemic erupted in the spring of 2020.

As consumers have shifted their purchases more toward necessities, Walmart, the nation’s largest retailer, on Tuesday reported sales and profit results that topped expectations. Walmart said more of its customers were favoring lower-priced grocery items.

But the company is benefiting from higher-income shoppers who have been trading down to Walmart to try to reduce their grocery bills. The company, long associated with price-conscious and lower-income consumers, disclosed that roughly 75% of its grocery sales last quarter were to households with incomes of at least $100,000.

On Wednesday, Target reported that its profit plunged nearly 90%, despite solid sales, largely because it was forced to slash prices to clear heavy inventories of clothing, home goods and electronics. The retailer’s stock tumbled on the news.

And last month, Best Buy, the nation’s largest consumer electronics chain, cut its annual sales and profit forecast, saying inflation had dampened consumer spending on gadgets.

Still, as a whole, America’s consumers have been showing the steady willingness to spend, thought at a more modest pace. Home Depot on Tuesday reported sustained demand among its customers for goods related to home improvement projects despite surging prices and mortgage rates for homes.

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D’Innocenzio reported from New York.

Article Topic Follows: AP National News

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