U.S. retail sales flat in July as inflation takes its toll

WASHINGTON– The pace of sales at US retailers remained unchanged last month as persistently high inflation and rising interest rates forced many households to spend more cautiously.

Retail purchases were flat in July after rising 0.8% in June, the Commerce Department reported Wednesday.

U.S. consumers, whose spending accounts for nearly 70% of economic activity, have remained mostly resilient even with inflation near a four-decade high, growing economic uncertainties, and mortgage lending rates and others up. Yet their overall spending has declined and shifted increasingly toward basic necessities like groceries and away from discretionary items like housewares, casual clothing and electronics.

The government’s monthly retail sales report covers around a third of all consumer purchases and does not include spending on most services ranging from plane tickets and apartment rents to movie tickets and doctor visits.

Although headline inflation remains painfully high, consumer prices were unchanged from June to July – the lowest such reading in more than two years.

Yet inflation poses a serious threat to families. Gasoline prices fell from their highs, but food, rent, used cars and other necessities became much more expensive, beyond the wage increases most workers received.

Despite a still buoyant labor market, the US economy contracted in the first half of 2022, raising fears of a possible recession. Growth has weakened largely due to the Federal Reserve’s aggressive interest rate hikes, which aim to cool the economy and bring high inflation under control.

The impact of the Fed hikes was mainly felt in the real estate market. Sales of previously occupied homes have slowed for five straight months as higher mortgage rates and high selling prices kept many potential buyers on the sidelines.

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

As consumers shifted their purchases more towards basic necessities, Walmart, the nation’s largest retailer, reported better-than-expected sales and profit results on Tuesday. Walmart said more of its customers preferred lower-priced groceries.

But the company is taking advantage of higher-income shoppers who have turned to Walmart to try to lower their grocery bills. The company, long associated with price-conscious, low-income consumers, revealed that about 75% of its grocery sales last quarter went to households with incomes of at least $100,000.

Meanwhile, last week Walmart and rival Target issued profit warnings, noting that their shoppers were cutting back on discretionary buying.

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.

Yet overall, US consumers have shown a steady willingness to spend, albeit at a more modest pace. The Home Depot on Tuesday reported sustained demand among its customers for goods tied to home improvement projects despite soaring prices and mortgage rates for homes.


D’Innocenzio reported from New York.

ABC News

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