July Retail Sales Fall As Spending Shifts to Services

Furniture, clothing, sporting goods, motor vehicles all take a hit

Father with little daughter grocery shopping for dairy products in supermarket

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Consumers spent less at retailers in July, continuing the summer shift away from goods and toward services as pandemic restrictions on activities lifted. Another wave of virus cases, however, could change how much people spend and where they spend it, economists warned.

Retail sales in July fell 1.1% from the month before, according to seasonally adjusted data released Tuesday by the Census Bureau. The drop was larger than the 0.2% decrease economists expected. Consumers moved away from buying items that were staples earlier in the pandemic, purchasing less furniture, clothing, and sporting goods.

Purchases from non-store retailers, including online commerce, dropped 3.1% in July, after rising sharply during the lockdowns. The decline may have been partly due to a lull following Amazon’s Prime Day promotion in June, wrote Ryan Sweet, senior director at Moody’s Analytics, in a commentary Tuesday. Spending fell 3.9% on motor vehicles and parts, the third straight month of declines, as supply shortages continued to constrain automaking.  

Retail sales nonetheless have soared to record levels during the pandemic. Even with July’s decrease, sales are still above levels seen before the pandemic shut down the economy—17.2% higher than the pre-pandemic peak in January 2020, according to seasonally adjusted Census Bureau data.

The shift in July away from household goods like furniture indicates consumers’ desire to escape the constricted lifestyle imposed in March 2020 and continuing into the first half of 2021, economists said. Businesses catering to people’s need to get out saw increased sales last month, with spending at bars and restaurants jumping 1.7%, the fifth straight month of increases, and spending at gas stations rising by 2.4%. Even so, areas of the economy that performed well in July could face obstacles going forward, economists said, if increased virus cases cause consumers to act more cautiously and to slow or change their spending habits

While some slowdown is likely, the effect should be limited, wrote Wells Fargo economists Tim Quinlan and Shannon Seery in a commentary, as the pandemic has hamstrung the economy less and less with each new wave of cases. Oxford Economics agreed, saying in its analysis that it expects consumers—aided by savings accumulated over the last year—to continue spending despite the pandemic and its potential effect on consumers’ mood about the economy.

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