FILE PHOTO: Shoppers carry bags of purchased merchandise at the King of Prussia Mall, United States’ largest retail shopping space, in King of Prussia, Pennsylvania, U.S., December 8, 2018. REUTERS/Mark Makela
August 17, 2021
By Lucia Mutikani
WASHINGTON (Reuters) – U.S. retail sales fell more than expected in July as shortages weighed on purchases of motor vehicles, suggesting a moderation in economic growth early in the third quarter.
The weak sales reported by the Commerce Department on Tuesday also reflected a plunge in online purchases, payback after Amazon pulled forward its Prime Day to June from July.
With the school year getting into full swing later in August and most education districts reverting to in-person learning, a rebound is likely, though rising COVID-19 cases are a wild card.
Retail sales dropped 1.1% last month. Data for June was revised up to show retail sales increasing 0.7% instead of rising 0.6% as previously reported. Economists polled by Reuters had forecast retail sales slipping 0.3%.
Sales increased 15.8% compared to July last year.
Receipts at auto dealerships fell 3.9% after declining 2.2% in June. Motor vehicle production has been hampered by a global shortage of semiconductors. The scarcity of chips has also impacted the availability of some household appliances like microwaves and fridges.
“Even as demand remains strong, motor vehicle sales have continued to fall over the past few months as the semiconductor shortages have made it difficult for consumers to find vehicles they want regardless of the price,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.
Retail sales are mostly goods, with services such as healthcare, education, travel and hotel accommodation making up the remaining portion of consumer spending. Restaurants and bars are the only services category in the retail sales report.
Sales at clothing stores fell 2.6%. A rebound is expected as parents shop for the new school year. Online retail sales dropped 3.1%. Sales at building material stores decreased 1.2%. Receipts at sporting goods, hobby, musical instrument and book stores declined 1.9%.
But consumers increased spending at restaurants and bars, leading to a 1.7% rise in receipts. Sales at restaurants and bars increased 38.4% compared to July 2020. Sales at electronics and appliance stores gained 0.3%.
U.S. stock index futures fell on the data. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.
SPENDING ROTATION
Part of the cooling in overall retail sales reflects the rotation of spending from goods to services like travel and entertainment, with more than 50% of the United States’ population fully vaccinated against COVID-19. Rising infections driven by the Delta variant of the coronavirus could, however, slow the services spending boom.
The U.S. Centers for Disease Control and Prevention in late July urged fully vaccinated Americans to resume wearing masks in indoor public places in areas where the virus is surging.
Excluding automobiles, gasoline, building materials and food services, retail sales fell 1.0% last month after an upwardly revised 1.4% increase in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have accelerated 1.1% in June.
“Keep in mind that retail sales do not capture the majority of services spending and therefore understate the resilience of overall consumer spending,” economists at Bank of America Securities wrote in a research note.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, notched double-digit growth in the second quarter, helping to pull the level of GDP above its peak in the fourth quarter of 2019.
With households sitting on at least $2.5 trillion in excess savings accumulated during the pandemic, consumer spending is likely to remain strong for the rest of the year. Qualifying households in July started receiving money under the expanded Child Tax Credit program, which will run through December.
The economy grew at a 6.5% annualized rate in the second quarter. The Atlanta Federal Reserve is currently estimating GDP growth will increase at a 6.0% pace in the third quarter.
(Reporting by Lucia Mutikani; Editing by Nick Zieminski and Andrea Ricci)
Source: One America News Network
