U.S. Retail Sales Were Flat In July As Inflation Takes A Toll

Overall spending has weakened, and it has shifted increasingly toward necessities like groceries and away from discretionary items.
Posted at 11:33 AM, Aug 17, 2022

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 in July after having risen 0.8% in June, the Commerce Department reported Wednesday.

America's consumers, whose spending accounts for nearly 70% of economic activity, have remained mostly resilient even with 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.

Though overall inflation remains painfully high, consumer prices were unchanged from June to July — the smallest such figure in more than two years.

Still, inflation is posing a serious threat to families. Gasoline prices have fallen from their heights, but 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 mortgage 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.

At the same time, in recent weeks, Walmart and its rival Target have issued profit warnings, noting that their shoppers were reducing their discretionary purchases.

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, though 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.

Additional reporting by The Associated Press.